The India-US trade deal is no longer in the domain of bilateral economic engagement alone. US President Donald Trump has pushed it into the realm of geopolitics. In his characteristic communication through social media, Trump has slapped a 25 per cent tariff on India and also suggested that India will be penalised for “buying vast majority of military equipment” from Russia and for being “Russia’s largest buyer of energy along with China at a time when everyone wants Russia to stop the killing in Ukraine”.
In another post, Trump states that “We have just concluded a Deal with the country of Pakistan, whereby Pakistan and the US will work together on their massive oil reserve”. Clearly, bringing in India’s relations with Russia, China and Pakistan into bilateral trade deal negotiations by Trump gives India an opportunity to recalibrate trade talks parameters.
Such intemperate statements and announcements are a setback to significant work done since 13 February 2025, when Prime Minister Modi visited President Trump and the two agreed to launch negotiations for a Bilateral Trade Agreement between the United States and India.
Objectives of India-US Trade Agreement
In February 2025, after the Trump-Modi meeting, the White House issued a statement confirming the agreement between the ‘leaders of sovereign and vibrant democracies that value freedom, the rule of law, human rights, and pluralism’. It reaffirmed the strength of the India-US Comprehensive Global Strategic Partnership, anchored in mutual trust, shared interests, goodwill and robust engagement of their citizens. Besides launching a new initiative, the “US-India COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century”, they also decided to work out plans to negotiate the first tranche of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by fall of 2025 to set a bold new goal for bilateral trade—“Mission 500”—aiming to more than double total bilateral trade to $500 billion by 2030.
Subsequently, during the meeting between US Vice President JD Vance and Prime Minister Narendra Modi in April 2025 in New Delhi, Terms of Reference for negotiations of the Bilateral Trade Agreement (BTA) were finalised. The US expected the trade deal to include increased market access, a reduction in tariff and non-tariff barriers, and a robust set of additional commitments to ensure long-term benefits.
The United States has long flagged issues relating to significant trade barriers with India. The US’ total goods trade with India was an estimated $129.2 billion in 2024, and as a result, the United States ran a $45.7 billion goods trade deficit with India in 2024, a 5.1 per cent ($2.2 billion) increase over 2023. During the February meeting between Trump and Modi, India announced tariff reductions and its willingness to further reduce tariffs on US products as part of the BTA.
India’s average applied tariff is 17 per cent, among the highest of the world’s largest economies, while the US average applied tariff is 3.3 per cent. India’s average applied tariff rate on agricultural products is 39 per cent, while the US average applied tariff on agricultural products is just 5 per cent. In addition to tariffs, technical barriers to trade, regulatory barriers, and restrictions on access to the market in the services, industrial, and agricultural sectors also reduce US exports to India. Mexico, Canada, China, Germany, Japan, South Korea, Taiwan, Vietnam, UK & India, in that order, are the largest trading partners of the US.
Also read: Geopolitical forces beyond New Delhi’s control are at play in Trump’s approach to India
US Free Trade Agreement (FTA) partner countries provide greater market access through reduced or eliminated tariffs, intellectual property protection, and elimination of non-tariff barriers among other provisions. Accessing FTA markets can give a product or service a competitive advantage over products from other non-FTA countries. The US has 14 FTAs with 20 countries, which comprise about 40 per cent of US goods’ exports. These are Australia, Bahrain, Chile, CAFTA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras & Nicaragua), Colombia, Israel, Jordan, South Korea, Morocco, Oman, Panama, Peru, Singapore and USMCA (United States-Canada-Mexico).
The recent US-EU FTA was preceded by Trump’s threat of a 30 per cent tariff, which later escalated to 50 per cent. Now, the US-EU trade deal has settled for a 15 per cent tariff. But that is only the tip of the iceberg. Europe has agreed to spend around $1.3 trillion with America over the next three years. Europe will buy $750 billion worth of energy products from the US and invest $600 billion in the US market. In the bargain, EU gets total exemption on tariffs on aircraft and their components, semiconductor equipment, critical chemicals and some agricultural products. Interestingly, individual EU member countries will have to ratify this deal in their respective parliaments. The energy buying and investment promises will have to be done by individual members and the private enterprises in these countries.
Trump should understand that a similar approach with India is next to impossible. India has signed 13 Regional Trade Agreements (RTAs)/Free Trade Agreements (FTAs) with various countries/regions, namely, Japan, South Korea, countries of the ASEAN region and countries of the South Asian Association for Regional Cooperation (SAARC), Mauritius, United Arab Emirates, and Australia. India’s merchandise exports to all these countries/regions have registered a growth in the last ten years.
India’s Free Trade Agreement approach is generally based on four verticals—FTA with developed economies, trade agreements with countries rich in rare earth minerals, FTA with developing or emerging economies, and trade deals with immediate neighbours. Besides, there are trade agreements with regional groups such as ASEAN and BIMSTEC.
The US-India negotiating teams will have to work on several issues pertaining to the elimination of tariffs, anti-dumping duty mechanisms and safeguards, and determine and define Rules of Origin framework.
In a multipolar world, the US has to first recognise the ground realities. With more than 14 FTAs and new ones in the pipeline, especially with the EU, India has to diversify its market access to more countries. This will also mandate India to be more competitive as far as price and quality are concerned. Trump’s failure to recognise FTA countries as equal partners and his my way or the highway attitude will not help the present economic situation, especially with a country of India’s size and stature.
Trump should also realise that the US manufacturing sector has performed very poorly over the last three or four decades. It will take another ten years for the US to meet its own past records. It has to ideally outperform China, South Korea, Vietnam, Taiwan and Japan. As far as automobiles are concerned, it has to beat China, India, Japan, Germany, and South Korea.
Also read: India’s diplomatic failures aren’t just Trump’s fault. It’s the price of Modi’s narcissism
India’s problems with the FTA
For years, Washington has pushed for greater access to India’s farm sector, seeing it as a major untapped market. But India has fiercely protected it, and rightly so, citing food security, livelihoods and the interests of millions of small farmers. India will also need to protect its basic agriculture sector for economic and political reasons.
India’s non-tariff barrier issues, such as its growing set of ‘Quality Control Orders’ (QCO), are significant obstacles to US market access and may need greater tactical handling in a trade deal. The US has raised concerns over what it calls India’s growing and burdensome import-quality rules. Over 700 QCOs, part of the Atmanirbhar Bharat (self-reliant India) push, result in curbing low-quality imports and promoting domestic manufacturing.
Meanwhile, India’s manufacturing sector, especially the core sectors like steel, cement, metals refining, mining and infrastructure building, is stuck in the 1950s and 1970s. We are still using human beings in boilers, furnaces with 1245 degrees centigrade heat and shutting the plant for ten to twelve days every six months.
By referring to India as a “dead economy” and talking of an “oil deal” with Pakistan, Trump is introducing the geopolitical element to trade talks. India reserves the right to look for national interest in the emerging geopolitical dynamics. Both Balochistan and Sindh are experiencing political turbulence and seeking freedom from Islamabad. The China-Pakistan Economic Corridor (CPEC), passing through Pakistan-occupied Kashmir, continues to remain a flashpoint in the region. After botched decades in Afghanistan, Trump is walking into another minefield in the region.
Linking trade and geopolitics will hurt America more than the countries that are looking to partner for prosperity with the US. New Delhi could wait and watch, and restart FTA negotiations after Trump realises the futility of his irresponsible statements.
Seshadri Chari is the former editor of ‘Organiser’. He tweets @seshadrichari. Views are personal.
(Edited by Theres Sudeep)