Modi-Trump meet: With just hours left for Prime Minister Narendra Modi’s first meeting with re-elected Donald Trump, attention is fixed on the two leaders and the potential trade agreements they might negotiate. Since the outcome of the US elections confirmed a Trump 2.0 administration, speculation has been rife about the consequences for bilateral trade, given the history of tariff disputes between the two nations.
The Trump administration has adopted a confrontational trade stance with China, Mexico, and Canada, heightening tensions worldwide. Modi’s US visit comes at a crucial juncture, particularly as both nations have previously attempted to finalise a limited trade agreement, which remained unsigned due to unresolved issues. With officials from India’s commerce, industry, and external affairs ministries engaged in intense discussions, there is a renewed push to revive negotiations on what was once dubbed the mini-trade deal. However, a major roadblock remains: Trump’s America First policy which places tariffs at the heart of US trade strategy.
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India-US trade in numbers
The United States remains a crucial trade partner for India. The US is India’s largest trade partner as of 2024, but India ranks tenth in the list of US trading partners for the same year. The India-US trade touched a record $129.2 billion in 2024. The United States runs a trade deficit of $45.7 billion with India, and US imports from India accounted for about 2.7% of all imported goods last year. India’s exports to the US during the first nine months of the fiscal year totalled $59.93 billion, marking a 5.57% increase. December alone witnessed an 8.49% jump in exports, reaching $7 billion.
Despite these figures, trade friction persists, particularly with Trump’s penchant for leveraging tariffs as a bargaining chip. With the US economy facing challenges, protectionist measures are likely to intensify, impacting India’s export outlook.
Modi-Trump meeting and the tariff war
On Monday, the US government significantly increased tariffs on steel and aluminium imports to a flat 25%, with no exemptions. While Trump’s administration claims the move will protect struggling American industries, the decision raises concerns about a potential multi-front trade war.
For India, the impact could be severe. Steel shipments to the US, already minimal, may shrink further, while surplus global supply could flood the Indian market. Over the past year, rising steel imports into India have depressed prices and squeezed profits for domestic producers. Experts warn that increased tariffs could further hinder Indian steel exports. As one of the few major markets without stringent trade restrictions, India risks becoming a dumping ground for excess global steel production.
Thus far, India has not been singled out for trade penalties. However, should it face targeted tariffs, the government will need to evaluate the repercussions across key industries.
Addressing US trade concerns
India, like many other nations, has also embraced protectionist policies to safeguard domestic industries. In some cases, import duties reach as high as 100%, drawing criticism from the Trump administration. Resolving these concerns will be critical if India hopes to secure a trade deal.
New Delhi has already taken steps to ease tensions, cutting basic customs duties on motorcycles, waste and scrap materials, and ethernet switches in its February 1 Union Budget. Meanwhile, Indian officials are waiting for the appointment of a new US Trade Representative (USTR) to begin negotiations under the Trump administration’s revised America First Trade Policy. The US is prioritising bilateral or sector-specific trade deals aimed at increasing market access for American businesses, workers, and farmers.
India and the US currently lack a free trade agreement, but India is a member of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF). However, India opted out of the IPEF’s trade pillar due to concerns over transparency and commitments. Despite these challenges, India has been proactive in addressing US trade concerns.
Energy as a key bargaining chip
Ahead of Modi’s visit, India is ramping up liquefied natural gas (LNG) imports from the US. State-run energy firms such as GAIL, Indian Oil Corporation (IOC), and Bharat Petroleum (BPCL) are engaged in talks with American suppliers for long-term LNG contracts. The Trump administration has aggressively promoted US energy exports, and increased Indian purchases could play a role in trade negotiations.
By importing more LNG, India could help reduce its trade surplus with the US, potentially diffusing tensions. Other nations have already employed this strategy, increasing LNG imports to improve trade ties with Washington. If the negotiations succeed, the US could further solidify its position as the world’s top LNG exporter, while India gains a stable energy supply.
Lessons from the US-Japan trade deal
Despite the current climate, experts argue that a full-fledged US-India trade agreement remains unlikely. However, the 2019 US-Japan Trade Agreement (USJTA) offers an alternative model. While not a comprehensive FTA, USJTA incorporated significant tariff reductions and set precedents in digital trade cooperation.
A similar India-US deal could be structured to include selective tariff cuts and sectoral agreements. Given that India imposes higher tariffs than the US, any deal would likely require substantial tariff reductions by New Delhi, reinforcing reciprocity principles. In return, India could leverage negotiations to enhance its position as a global supply chain hub.
Balancing strategic partnerships
Despite the protectionist rhetoric in Washington, there is bipartisan consensus on strengthening US-India ties. Trump’s tariff threats may ultimately serve as a bargaining tool rather than a rigid policy stance. The administration is also expected to present trade opportunities alongside tariff hikes.
While a trade agreement with the US remains a priority, India must not place all its bets on Washington. New Delhi should continue pursuing trade deals with the European Union, the United Kingdom, and even China to capitalise on shifting global dynamics.
Historically, Washington and Beijing have maintained open channels for negotiation, despite trade conflicts. Trump has previously sought a ‘grand bargain’ with China, and India must keep its strategic options flexible. Strengthening economic partnerships across multiple fronts will be key to securing India’s long-term trade interests.
As the world’s two largest democracies and leading economic powers, India and the US have shared interests in countering China’s economic dominance in the Indo-Pacific. However, whether Modi and Trump can overcome the hurdles and finalise a meaningful trade pact remains to be seen.