DONALD Trump has now got legislative clearance from both houses in the US to charge up to 100 percent tariffs on imports from countries that have been doing business with Russia in violation of the unilateral sanctions imposed upon it by the North in the wake of the Ukraine war. India and China which are substantial buyers of Russian oil are likely to be the main targets of these Trump tariffs.

Of the two countries, China is much better placed: it has tremendous bargaining power vis-à-vis the US since it controls the bulk of the supplies of rare earths in the world, that are critical inputs for a whole range of activities from advanced electronics to defence systems; the US therefore is always circumspect in its dealings with China, taking care not to push it so hard that its supplies of rare earths get disrupted. India however does not have any such leverage vis-à-vis the US.

These proposed Trump tariffs demonstrate the utter vacuity of the sermons given by international organizations and bourgeois economists who make it a point to preach free trade. Since unilateral sanctions are imposed against any country that refuses to toe the imperialist line, and since any other country that carries on trade with such a targeted country despite Western sanctions can attract punitive tariffs on the scale now being proposed by the US, countries must clearly reckon with such coercion while deciding on their trade options. Believing in the advisability of free trade is not only theoretically wrong; it is also completely absurd in the world of realpolitik.

The sheer invidiousness of American actions however does not consist only in the imposition of unilateral sanctions,  or of punitive tariffs in support of such sanctions: it consists also in the utter duplicity in the application of such sanctions and tariffs. Even today while the US is penalizing countries like India for buying Russian and Iranian oil, the US itself continues to buy natural uranium and low enriched uranium from Russia. In fact the very legislation, the Lindsey O. Graham Act, that proposes punitive tariffs on countries like India for buying Russian oil, contains an exception permitting US purchases of uranium from Russia. The interests of other countries in short can be ignored, but not those of the US!

The question that arises however is this: why is the US taking this tough stand against countries like India now, when just a few months ago, at the time of the initial closure of the Strait of Hormuz by Iran, it was actually encouraging India to purchase Russian oil in order to keep down world oil prices?

India’s not buying Russian crude would certainly raise crude prices not only within India but in the world as a whole. While looking at the prices that India has to pay, we have to reckon with several factors. First, geographical proximity keeps down transport costs to India of Russian oil compared to its alternative, American oil, that would otherwise have to be substituted for it if Western sanctions are obeyed. Second, there is the additional fact that the base-line production and extraction cost of Russian oil is lower than that of American oil. Finally, there is the further fact that because of the sanctions Russia has been offering rebates on the oil it sells to countries like India. All these together amount to a significant cost advantage on Russian oil imports that would get lost if India stopped buying from Russia. This would entail therefore a substantial acceleration in the inflation rate in India owing to cost-push factors arising from more expensive imported oil. Such an acceleration in inflation would impinge especially on the poor households; no country in the world has any legal or moral right to demand of another that it must take steps to accelerate its inflation at the expense of its poor. The US of course may not care if the poor in India suffer, but the Indian government is duty-bound to prevent such suffering.

It is however the ramifications for the world economy as a whole, including its own economy, towards which the US cannot possibly profess any unconcern. With the Strait of Hormuz closed once again, and with the Houthis controlling Bab-el-Mandeb which is a key point on an alternative route for West Asian oil, an acute shortage of oil has developed in the world economy. This has been compounded by Saudi Arabia shutting down its East-West pipeline following drone strikes that damaged a pumping station in the Riyadh and Medina regions. The resulting shortage of global oil supplies owing to all these reasons has pushed up the price of Brent Crude above $105 on September 10, and this price has been hovering around that level ever since. If countries like India and China are made to desist from buying Russian crude, then the world price of crude would rise further. It would rise  because the demand from India, China and other targeted countries would have to be accommodated from non-Russian supplies, as the Russian supplies are taken off the market owing to sanctions. The steep increase in oil prices that is already occurring despite the availability of Russian oil, would then get further compounded in the absence of Russian oil.

This is the surest route to a world inflationary recession of the sort that had happened in 1973 owing to the first oil-shock. No doubt the absolute shortfall in global oil supplies owing to the sanctions against Russia would be made good partly or wholly by larger US supplies; but this, as already discussed above, would not prevent a rise in world oil price. Even if the US supplies the entire amount that Russia is not allowed to supply owing to the application of sanctions, the higher cost of US oil would still make it more expensive in the world market. Higher oil price would mean a lower demand for non-oil goods in the world.

Of course, if government expenditures went up, financed by larger fiscal deficits, to make good this fall in the private demand for non-oil goods, then there would be no reason for any recession to occur; but one can hardly expect fiscal- deficit-financed government expenditure anywhere to be going up in a situation of inflation. In fact, the standard prescription for an increase in the inflation rate is the very opposite, namely, the practice of “austerity” in matters of government policy. Hence an inflationary recession would necessarily follow as a consequence of sanctions against Russian oil, exactly as had happened as a consequence of the first oil shock in 1973.

Now, Donald Trump certainly would not risk a world inflationary recession that would affect the US as well; and he certainly would not do so with US elections looming over the horizon. Hence we come back to the question: why has the Lindsey O. Graham legislation been enacted at this juncture?

The likely answer to this question is that it is an empowering legislation, which gives Trump a carte blanche, with overwhelming bi-partisan support, to arm-twist countries into falling in line with US dictates, not necessarily on buying Russian oil alone but on all kinds of other issues as well. “You do this otherwise we impose 100 percent tariffs on your goods” is the threat that would be held out against countries buying oil from Russia.

In the case of India where an “unequal” Indo-US trade treaty had been finalized until a US Court ruled against Trump’s jurisdiction in the matter, and where a renegotiated treaty has not yet been finalized, the Lindsey O. Graham legislation would be used to coerce India into signing a new version of the old “unequal” treaty; and the same would be done against other countries whom the US wants to coerce on similar or other matters. Lindsey O. Graham legislation in other words is a means of empowering Trump to coerce countries into accepting US diktat.

It is absolutely necessary therefore for the Indian government to hold out against such bullying. It must not display the usual pusillanimity, which the NDA government is prone to displaying, in matters relating to the US; it must not sacrifice the interests of the country out of a sense of panic that if it did not cave in then 100 percent tariffs would be imposed on Indian goods in the American market. It must make it a point to call the American bluff.