As the August 1st deadline looms for the United States to reinstate reciprocal tariffs, trade negotiations between India and the U.S. are intensifying. While several nations face the threat of increased duties, India has been excluded from the initial list of countries receiving formal tariff notifications, signaling that a trade agreement may be within reach. However, experts advise caution, emphasizing that any potential deal must prioritize India's long-term strategic interests.
Trump's Tariff Tactics and India's Position
President Trump has a history of using tariffs as a negotiating tactic, and this instance is no different. Recently, the U.S. issued formal tariff letters to 14 countries, including Japan, South Korea, and several ASEAN members, setting the stage for duties ranging from 25% to 40% effective August 1st. These warnings, which the White House calls "final notices," present countries with a choice: accept U.S. terms or face higher tariffs.
Despite the pressure, India has maintained its stance on protecting sensitive sectors like agriculture and dairy while seeking greater access for its labor-intensive exports. India has communicated its position clearly to the U.S., and the next move lies with Washington.
Key Issues and Potential Outcomes
Several key issues remain contentious in the negotiations. The U.S. is seeking lower trade barriers for steel and agricultural products, a politically sensitive issue for the Indian government, given that a large percentage of its workforce is involved in agriculture. Specifically, the U.S. is pushing for access to the Indian market for products like apples, tree nuts, wines, and dairy. India, on the other hand, wants lower U.S. tariffs on exports like apparel, textiles, gems and jewellery, and leather.
If a deal is struck, it's likely to be an interim agreement, with both sides hoping to finalize a broader bilateral trade agreement by the end of the year. However, experts caution that even with a deal, Indian exports may still face additional levies, making it a pressured compromise.
Geopolitical Considerations
Beyond the immediate trade concerns, there are broader geopolitical considerations at play. India sees the trade negotiations as an opportunity to undercut China's status as a leading manufacturing hub by securing key supply chains and investing in advanced technologies. A trade deal with the U.S. could strengthen economic ties and help counter China's influence in the region.
Impact on Indian Sectors
The potential trade deal and the threat of tariffs have implications for various Indian sectors. Sectors like automotive and auto parts, steel and aluminum, and pharmaceuticals are likely to remain in focus. A favorable trade deal could positively impact these sectors, while the reinstatement of high import tariffs could pose challenges.
US-India Trade Relations
Despite the ongoing trade tensions, the U.S. remains India's largest trading partner. In the fiscal year 2024-25, bilateral goods trade stood at $131.84 billion, with India enjoying a surplus of $41.18 billion. The extension of the tariff suspension provides a window for negotiators to bridge remaining gaps and potentially secure a deal that could further solidify economic ties between the two countries.
While the path forward remains uncertain, both India and the U.S. have incentives to reach a mutually beneficial agreement. Whether they can overcome the remaining hurdles and seal the deal remains to be seen.
