Why oil and gas could help India blunt Trump’s reciprocal tariffs #IndiaFinance

India’s prime minister came to the White House on Thursday with tariffs an unavoidable top-of-mind agenda item. But Narendra Modi left able to use other issues — notably a promise to import more U.S. oil and gas — to perhaps begin the process of blunting Trump’s promise of reciprocal tariffs on his country.

Trump on Thursday announced his reciprocal tariff plan but with a delay as his administration launches negotiations on a one-by-one basis.

India was up first for talks and hasn’t secured an exception to the tariffs so far. But it walked away from the meetings with Trump offering praise and touting the pledges by the country to increase military sales as well as energy.

Trump called Modi a “very special man” as they addressed the press just hours after he assailed India’s high tariff rates.

The president added he remained concerned about the trade deficit but claimed “we can make up the difference very easily with the sale of oil and gas.”

While talks between the world first and fifth largest economies will continue in the weeks ahead, the exchange was emblematic of the prominent role that energy is set to play.

Modi oversees an economy that is a key recipient of US oil and gas exports and made it clear that changes on that front could be on the table depending on how the tariff talks go.

“Trump has made it very clear that he views a lot of these things transactionally,” said Shayak Sengupta, who leads the India program at Columbia University’s Center on Global Energy Policy.

India also has a longtime personal connection between Trump and Modi working in its favor, Sengupta adds, noting the country “hasn’t approached this Trump presidency with as much nervousness as, say for example, the European Union.”

Modi also this week announced tariff cuts on some more symbolic US goods like Harley-Davidson motorcycles.

Read more: What are tariffs, and how do they affect you?

Another keen issue between the two countries, experts expect, could be non-tariff trading barriers that the US is able to implement more effectively using regulatory capacity or simply the money to subsidize impacted industries.

The trade deficit between the US and India has been widening quickly and recently topped $45 billion, with India also charging some of the highest tariffs in the world.

Both facts have long rankled Trump and his aides.

“The world has taken advantage of the United States for many years,” Trump said Wednesday. “We’re going to be doing reciprocal tariffs, which is whatever they charge, we charge very simply.”

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But it’s unlikely to be quite that simple in India’s case. The nation imports energy from the US and relies on various other sources of oil and natural gas to power its economy, with President Trump also keenly interested in increasing US energy exports.

India currently imports significant energy from Russia at a cheaper cost than US energy, but the increased costs of some sort of uptick in US energy imports could — from India’s perspective — be more than offset by avoiding new Trump tariffs.

And energy has already proven to be an issue that can move Trump.

In just a few weeks since the inauguration, the White House added a last-minute carve-out for lower duties on Canadian energy in the back-and-forth with that country.

And promises from Japan’s prime minister, Shigeru Ishiba, to import more liquefied natural gas helped Trump claim victory there during a recent White House visit.

Modi is also focused on on non-tariff trade barriers the US employs also need to be considered.

“It is hard to employ all of the non-tariff protectionism that the United States employs in terms of money and resources and just administrative capabilities and the rest,” Scott Lincicome of the Cato Institute said in a recent interview.

It’s long been a keen issue for countries like India that say focusing simply on tariffs rates alone misses that overall picture.

But, Lincicome noted, that could come face to face with Trump, who “doesn’t care about any of that and just simply wants to go after tariffs.”

In the end, many expect a trade agreement is possible, perhaps the question being whether it will be one that will significantly change the trade landscape between the two nations.

Professor Sengupta notes that previous deals — including some with Trump — have been struck with fanfare and promises of increased purchases of various goods, but then down the line “I suspect you’re not going to see as much of a movement in terms of the deficit, the trade surplus, or whatever metric that you want to look at.”

This post has been updated with additional developments.

Correction: A previous version of this story had an incorrect tally for the trade deficit between the US and India. It is over $45 billion.

Ben Werschkul is Washington Correspondent for Yahoo Finance.

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