The India-US trade deal: US President Donald Trump seems to have managed to force India lower its tariffs, the cornerstone of the country’s trade policy since independence. The deal, negotiated by commerce minister Piyush Goyal in Washington, is being framed as a step towards reducing the US’s $45 billion trade deficit with India.
While Trump has claimed that India has agreed to “cut its tariffs way down,” Indian government officials insist that discussions are still going on. US commerce secretary Howard Lutnick has demanded that India buy more American defence products and lower its tariffs to move the deal forward. With a goal of doubling bilateral trade to $500 billion by 2030 under the Mission 500 initiative, Washington’s pressure has raised concerns about whether India is being coerced into an arrangement that disproportionately benefits the US.
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Tariffs and reciprocal retaliation
India has historically imposed some of the highest tariffs in the world, particularly on agriculture products, where nearly half of the country’s workforce is employed. Average tariffs on agricultural products stand at 32.4%, compared with the US’s 2.2%. Trump has threatened reciprocal tariffs if India does not lower import duties, a move that risks escalating into a trade war.
While India has made selective tariff cuts on high-end American goods like bourbon whiskey, luxury cars, and motorcycles, Washington is demanding more. The US argues that India’s trade barriers make it difficult to sell American goods, but analysts note that the US heavily subsidises its agricultural sector, giving American farmers an unfair advantage. The insistence on further tariff reductions has already triggered resistance from India’s farming lobbies, reminiscent of the backlash that led New Delhi to exit the RCEP negotiations in 2020.
The concessions in the India-US trade deal may contradict Prime Minister Narendra Modi’s Atmanirbhar Bharat (self-reliant India) vision, which seeks to strengthen domestic manufacturing by selectively increasing tariffs in sectors like electronics and solar equipment. Since 2020, India has implemented protectionist measures to foster emerging industries. Yet, in negotiations with the US, India appears to be on the defensive, raising concerns that Washington is pushing New Delhi to abandon its long-term industrial strategy.
India has been a tough negotiator with trading partners like the EU and UK, demanding greater market access in exchange for tariff reductions. However, with the US, the urgency to maintain strategic ties appears to have softened India’s approach. This raises critical questions: Are these concessions sustainable? And will the benefits outweigh the costs?
Defence deals and geopolitical trade-off
Beyond trade, Washington is pressuring India to reduce its dependence on Russian military equipment and increase purchases from the US. Since 2008, India has bought over $20 billion worth of American defence products, and new agreements could include advanced fighter jets like the F-35. However, shifting away from Russia, India’s long-standing arms supplier, carries strategic risks that cannot be ignored.
While Washington presents stronger defence ties as a justification for a more open trade arrangement, Indian analysts warn against linking defence purchases to trade negotiations. Such an approach could set a precedent where India’s trade policy is dictated by geopolitical considerations rather than economic pragmatism.
China may benefit from India-US trade deal
Former Foreign Secretary Kanwal Sibal has warned that the India-US trade deal could inadvertently benefit China more than the US. If India lowers tariffs indiscriminately without securing clear trade advantages, it risks an influx of Chinese goods, undermining its domestic manufacturing sector.
In an interview to a TV channel, Sibal criticised Trump’s aggressive tactics, arguing that while the US claims to seek a special relationship with India, its negotiating approach mirrors its strategy against China. Moreover, Washington’s insistence on broad-based tariff reductions contradicts its own protectionist stance, as seen in its tariffs on steel and aluminium imports.
A fair deal or a strategic concession
A stronger India-US trade relationship is beneficial, but the terms of the proposed deal remain controversial. The Modi government has already extended significant concessions, but whether the US will reciprocate with greater market access for Indian goods remains uncertain. Indian officials insist that the agreement must be mutually beneficial, yet the growing pressure from Washington suggests a deal tilted in favour of US interests.
If India proceeds with a ‘zero-for-zero’ tariff approach on industrial goods, as some analysts suggest, the trade deal could still hold promise. However, agriculture remains a political landmine that New Delhi cannot afford to compromise on without triggering severe domestic repercussions.
The road ahead is fraught with challenges. While the Modi government is keen on securing a grand deal, it must ensure that economic liberalisation does not come at the cost of India’s strategic interests. The ongoing negotiations will test India’s ability to strike a balance between trade diplomacy and protecting its domestic industries.