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Journalism of Courage
India US trade talks deadline: WITH JUST TWO days left for the August 1 deadline set by the Donald Trump administration to wrap up agreements with its trading partners, the American President said he is planning tariffs at “somewhere in the 15-20 per cent range” for “the rest of the world”. That would mean a significant increase on the 10 per cent “baseline” tariff that applies to most trading partners now.
Given how talks have proceeded, an interim deal still seems distant. But three things are clear: One, the US is pushing hard for zero duty access to the Indian markets, like it did with Vietnam and Indonesia. Two, from its perspective, New Delhi is keen ensure the headline tariff doesn’t exceed 15 per cent for its goods exports to the US. And three, the tariff for each country may depend on multiple external factors, such as investment commitments and high-value purchases.
The Trump administration is learnt to be pushing for India to commit to specific purchases and investments, of the sort that it got the EU and Japan to sign up for. This may not be a big issue for India, given that Trump may be keen on scoring a political point on extracting a big investment commitment without any specific hard time-frame to achieve it. India may be open to purchasing three big-ticket items from the US: defence equipment, natural gas imports and nuclear reactors.
While New Delhi has managed to keep two contentious issues agri and dairy off the table for now, it may be willing to be flexible on segments such as opening up public procurement, like it did in the UK trade deal.
Indications are a sixth round of talks between the two negotiating teams will take discussions forward in August. What could be instructive is the limited takeaway for the US from the Japan deal: how the Japanese negotiators managed to upstage their American counterparts by getting an immensely favourable deal on automobiles, even as they dangled the agri market access concessions and Tokyo’s investment pledges as distraction the entire time.
Indian negotiators are keeping a close watch on the trade talks the US is currently engaged in with China. This will give New Delhi an idea about the comparative advantage it will have vis-à-vis Beijing. A delay in the deal does offer more visibility on what a favourable tariff range would be, in comparison to the tariff deals other countries have clinched.
Headline tariff number; comparative advantage
New Delhi is likely to push for market access in labour-intensive sectors, while trying to ensure a significant tariff differential compared to its Asian peers. If the final US headline tariff is between 10 per cent and 15 per cent, the tariff points offered to the UK and Japan, respectively, New Delhi would be satisfied. The advantage starts to taper off once the tariff goes over 15 per cent and inches up closer to 20 per cent, as was offered to Vietnam. A trans-shipment clause, of the kind slapped on Vietnam which levies an additional 20 per cent tariff, could be a problem for India too, given that a lot of Indian exports have inputs and intermediate goods in sectors such as pharma, engineering goods and electronics coming in from outside, including China. Also, New Delhi will be closely looking for clarity on the final American duty offer on China, given its belief that Trump will maintain a tariff differential. For Indian negotiators, extra tariffs on steel and aluminium, over and above the baseline, is an added complication. Trump’s threat of steep tariffs on BRICS countries for buying Russian oil is also a looming concern.
On specific sectors such as auto or consumer non-durables, India is likely to follow a quota system that progressively opens up market access over a span of multiple years, like it did in the UK deal signed last week.
Another question for New Delhi is: in the absence of an interim deal, should it brace for an eventuality where there may not just be 26 per cent reciprocal tariffs, but an additional 10 per cent BRICS tariff as well? Without this, India will compare well with Indonesia (19 per cent) and Vietnam (20-40 per cent), and give an advantage over China (30-34 per cent) and Bangladesh (35 per cent. The equation changes when the additional levies are factored in.
Exporters Struggle
Meanwhile, as the uncertainty continues, India’s exporters are struggling to navigate the way forward because buyers in the US are not clear as to what the final tariff will be, and are consequently holding back orders. The higher tariffs that the US has imposed on China means a number of Chinese manufacturers are now also rerouting shipments to Europe at throwaway prices, which is impacting India’s exports to the EU as well. India, like other countries, had frontloaded shipments ahead of the reciprocal tariff deadline for the ongoing Spring-Summer season, but there is now a question mark over the orders for the Fall-Winter season from October to March.
Once the official level discussions wrap up by mid-August, there is a sense that a final call on the deal could come down to a conversation between the two leaders, Prime Minister Narendra Modi and President Trump. This is especially so since it is Trump who is the trade negotiator-in-chief. For India, the best-case scenario would be to get a deal of some sort now, and then build on that in the future negotiations that could run into 2026, experts said.
For Trump, another consideration could be the fact that higher tariffs imposed by it mean higher prices for everyday goods made overseas. A Yale estimate from July 23 found that the tariffs will result in as much as $2,700 in “lost annual income” per household, though the taxes collected would potentially help narrow the long-running federal deficit. The tariffs that have kicked in so far are bringing in some money into the US Treasury, with tariff revenue pegged at $27.2 billion in June and $22.8 billion in May, according to the Treasury Department’s monthly statements, a sharp increase from earlier years.
