India Can’t Bank On Trump’s Words, It Needs Real Economic Muscle

In the current week that marks the 24th anniversary of the 9/11 attacks on the United States, which precipitated the US occupation of Iraq and Afghanistan, and spawned the Islamic State and its many offshoots, the world continues on its course of instability.

The rising price of gold remains the only constant in a world in flux. In India’s neighbourhood, Nepal joins Sri Lanka, Bangladesh and Myanmar in allowing popular anger against ineffective, corrupt politics to explode into destabilising violence.

In Japan, Prime Minister Shigeru Ishiba has resigned, following his party’s defeat in elections to the lower and upper houses of parliament. France is getting a fifth prime minister in two years, amidst popular protests against the country’s leader president Emmanuel Macron, after the fourth prime minister, Francois Bayrou, lost a trust vote, as he proposed spending cuts to rein in the country’s ballooning national debt.

Arab Fallout

Israel attacked Doha, the capital of Qatar, the country that has been instrumental in getting 148 of the hostages held by Hamas released, since the Gaza war started in October, 2023, following Hamas’s terror strike on Israel on the 7th of that month.

Israeli prime minister Benjamin Netanyahu had held then US president Joe Biden almost in contempt, refusing to rein in his attacks on Gaza’s defenceless civilian population even as such attacks and the US supply of arms and aid to Israel were eating into the Democrats’ prospects in the presidential elections. Now, he has shown president Donald Trump that America is the junior partner in the bilateral relationship, who must blindly support Israel in whatever its leadership wants to do.

Qatar is a country that hosts a major American military base. The US has used Qatar to carry on negotiations with assorted unsavoury characters who would not be invited to tea at the White House. The Taliban, for example. Qatar has been conducting negotiations to strike deals between Israel and Hamas for months, at American behest. To stage a strike that killed five Hamas negotiators and a Qatari official demonstrated bad faith. That rubs off on Trump as well. He has lost face in the entire Arab world.

Israel struck Yemen this week, and continued with its attacks and systematic starvation of the civilian population of Gaza. A majority of the world’s leading genocide scholars have determined that Israel’s actions in Gaza qualify to be described as genocide.

Russian drones crossed over the Poland-Ukraine border and entered Poland. NATO warplanes shot down the drones, according to Polish government sources. Moscow denied any such development. An incident of direct hostilities between Russia and NATO forces is a historic first.

Trumps Blames Democrats

Charlie Kirk, a right-wing political activist and ardent Trump supporter, was shot dead at the Utah Valley University campus, even as he was arguing with a student over a mass shooting involving transgender people. Trump mourned his passing. And blamed Democratic political rhetoric for creating the kind of hatred that leads to political killings.

In Brazil, former president Jair Bolsonaro’s trial has reached the stage of a verdict by a five-member bench of the Supreme Court. He is on trial for attempting to stage a coup and steal the election result of 2022, after he was voted out, in an eerie rerun of what Trump supporters had attempted in the US in January 2020.

All five judges are given a day each to pronounce and justify their verdicts. Two judges voted to find him guilty, including the chief justice. A third judge has chosen to find insufficient evidence to convict the former president. Two more judges await their turn. The majority would likely find him guilty. But Trump’s strong support for Bolsonaro and the 50% tariffs Trump has levied on Brazil’s exports to the US shore up Bolsonaro’s defiance of the judicial process.

Trump has been handed fresh opportunity to blame Democrats for America’s ills. Revised estimates of job numbers in the US in the 12-month period April 2024-March 2025 show 911,000 fewer people were employed than earlier estimates.

The US Bureau of Labour Statistics gets its job numbers from the response it receives to a questionnaire sent out to a large sample of employers. Everyone does not respond at the same time. The numbers get updated as data from fresh responses are integrated into earlier data.

Unemployment has risen in August to 4.3%, and the number of jobs created, it turns out, was only 21,000, far short of the anticipated 75,000. Although inflation has inched up in July, the Fed is expected to reduce the Federal Funds rate when its Open Markets Committee meets later this month. The debate now is whether the Fed would cut the rate by 50 basis points or by 25. Reduction in rates is likely to send funds to emerging markets like India, even as it weakens the dollar further.

Unfounded Optimism

An appeals court has found Trump’s reciprocal tariffs to be without legal backing. His hope is to get this verdict reversed in the Supreme Court. In the meantime, Trump has urged the European Union to levy 100% duty on India and China to penalise them for importing Russian oil, and giving Russia the funds it needs to wage war in Ukraine.

Hours later, Trump posted a message on his social media platform, Truth Social, seeking to resume talks with India and speak “with his very good friend Prime Minister Modi.” PM Modi has responded with eager readiness to reciprocate and “unlock the limitless potential” of the India-US partnership.

Even as the Indian PM gushes unfounded optimism, a Republican senator has introduced a bill to levy a 25% tax on the value of all outsourced services to American companies or individuals. Considering the steep discount at which Indian IT workers’ services can be obtained, in relation to comparable services from IT workers in the US, and the sheer size and skill range of Indian IT workers, as compared to IT workers anywhere else in the world, the HIRE Act would be unlikely to make a serious dent on the traditional IT outsourcing model.

Yet, the bill comes at a time of AI-induced disruption to traditional IT services. How this would play out is anyone’s guess.

Innovations in AI are reported from Abu Dhabi. The Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) in Abu Dhabi has unveiled K2 Think, a low-cost reasoning model designed to rival systems developed by DeepSeek and OpenAI. It is based on Qwen 2.5, Chinse firm Alibaba’s large language model. If this comes as a surprise, please be aware that the UAE spends 1.75% of GDP on R&D, while India spends 0.64% of GDP on R&D.

India has elected a new Vice-President, with the ruling NDA coasting to an easy victory, managing to split some votes away from the INDIA alliance. The Supreme Court has directed the Election Commission to accept Aadhaar as a valid document of identity while conducting its Special Intensive Revision of the electoral rolls.

A slew of initial public offerings is injecting some excitement into the stock market, buffeted by Trump’s trade tantrums since April. LG Electronics has proposed to follow Hyundai’s example of selling a chunk of the South Korean parent’s holding in its Indian subsidiary to Indian investors. It hopes to raise Rs 15,000 crore.

India Must Build Muscle

India has overtaken China as the largest buyer of Russian oil. This is not because the Chinese are running scared of American wrath over their Russian commerce. China is increasingly moving to electricity for transport, with more than half of all new car sales being of electric vehicles and high-speed trains that run on electricity offering viable alternatives to air travel on quite a few routes, and will increasingly buy smaller quantities of oil. China has stepped up its purchases of piped natural gas from Russia.

It is high time India’s policymakers realised that India cannot aspire to be a global player merely on the basis of its location in the balance of power between the superpowers, the US and China, but has to build the economic and technological muscle to become a power in its own right. India must be able to deal with the likes of Donald Trump from a position of strength, without gushing with warmth at a sudden word of praise from Washington.