In doubling bilateral trade to $500 billion, Delhi will have to pick up threads from Trump 1.0

This is not the first time the two countries are discussing a trade deal. During Trump’s first term in 2017-21 too, Washington had expressed its willingness to negotiate a broad trade agreement with India.

IPEF’s trade pillar negotiations failure

India is part of the US-led 14-member Indo-Pacific Economic Framework for Prosperity (IPEF), even though the crucial trade pillar — one of the four under the Framework — failed to take off as Washington did not offer tariff reductions or increased market access into the American market.

India had initially indicated it would like to restrict itself to an observer status and not actively negotiate in the trade pillar, before the US eventually abandoned the trade pillar entirely. Also, during his first term, Trump ended the Generalized System of Preferences (GSP) programme, which had granted duty-free access to over $5 billion worth of Indian goods into the US.

Due to job losses in several sectors, particularly in the US industrial belt following China’s entry into the WTO, sentiment among US lawmakers has turned against granting greater market access to foreign goods. Overall, US trade in both goods and services has reached $1 trillion.

In a recent article for the Council on Foreign Relation, Kenneth I. Juster, former US Department of Commerce official, who was appointed by Trump as Ambassador to India during his first term, wrote that early in Trump’s presidency, the United States had expressed willingness to negotiate a broad trade agreement with India.

“While US officials thought that the Indian government had signalled general interest in such an agreement, there did not seem to be concrete follow-through in terms of the mutual concessions required to conclude any such large deal. Over time, the necessary trade-offs by each side did not materialise, and the two parties were not even able to negotiate a smaller deal that would maintain India’s benefits under the US trade programme known as the Generalized System of Preferences,” Juster said.

Disregard for trade rules and agreements

While the joint statement provides little detail about the BTA, trade experts suggest the deal would likely involve India lowering tariffs to allow greater entry of American goods, rather than the US reciprocating, as US average tariffs are already among the lowest in the world.

New Delhi-based think tank Global Trade Research Institute (GTRI) said this is also not the best time for a trade deal with the US, as it does not respect free trade agreements under the current administration. “An example is how the Trump administration imposed tariffs on Mexico and Canada on steel and aluminium in violation of the United States-Mexico-Canada Agreement (USMCA) provisions,” GTRI said.

Given India’s generally higher average tariff levels compared to competing nations, the trade margins secured by other countries in trade agreements are typically more favourable than those secured by India.

India tariffs ‘big problem’

Calling India’s tariffs a “big problem”, Trump said that tariffs as high as 70 per cent or more on American goods such as cars limit access to the Indian market. “The US trade deficit with India is almost $100 billion, and Prime Minister Modi and I have agreed that we will be negotiating to address the long-running disparities,” Trump said at the India-US briefing. In goods alone, India had a surplus of about $35 billion in 2023-24, with the bilateral trade being $120 billion during the year.

“We want a certain level playing field, which we really think we’re entitled to, and he [Modi] does too, in fairness. So we’re going to work on that very hard, and we can make up the difference very easily with the deficit, with the sale of oil and gas, liquefied natural gas (LNG), of which we have more than anybody in the world,” Trump said.

Pressure to reduce trade deficit

Even as India lowered its basic customs duty on a range of items in the Union Budget, a White House statement on reciprocal tariffs pointed out that Indian tariffs on agricultural goods and motorcycles remain significantly higher than those imposed by the US on Indian products.

“The US average applied Most Favoured Nation (MFN) tariff on agricultural goods is 5 per cent, while India’s average applied MFN tariff is 39 per cent. India also imposes a 100 per cent tariff on US motorcycles, whereas the US only charges a 2.4 per cent tariff on Indian motorcycles,” the White House said

India’s goods trade surplus with the US has been rising, particularly after the Covid-19 pandemic, doubling from $17.3 billion in 2019-20 to $35.33 billion in 2023-24, alongside a notable shift in the export basket. While exports of electronic and engineering goods surged, traditional exports such as gems and jewellery and garments remained largely unchanged.

Meanwhile, India’s imports from the US over the past five years have grown at a slower pace compared to its exports. US exports to India reached $42.19 billion in 2023-24, up from $35.81 billion in 2019-20, with the bulk concentrated in five categories: mineral fuels (the largest segment), followed by precious and semi-precious stones, nuclear reactors, electrical machinery, and aircraft and parts.