UPSC Issue at a Glance | India-US Interim Trade Deal: Backdrop, key highlights, gains, and concerns

(Relevance: UPSC Mains Examination Syllabus: General Studies-II, III: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; Indian Economy, Effects of liberalisation on the economy.

Going beyond factual topics, UPSC expects to have thinking administrators. Hence, such topics – where you can reflect on what you have read, learnt and observed – become important. With the rapidly changing global order, previously questions also have been asked regarding India’s economic and strategic partnerships with countries such as the US, Russia, Japan, etc., especially in the areas of trade, defence cooperation and energy security. Thus, understanding the India-US interim deal becomes essential.)

Question 1:  What is the context and backdrop under which the India–US interim trade deal came?

US President Donald Trump said on February 2 that he had agreed on a new trade deal with India and that New Delhi agreed to curb its purchases of Russian oil and increase energy imports from the United States and potentially Venezuela. The announcement comes after months of escalating trade sanctions, triggered by Washington’s dissatisfaction with India’s energy sourcing and broader trade imbalance. Thus, before digging into the highlights of the India-US interim trade deal, it becomes significant to know the background of it. 

The tariff dispute dates back to early 2025, when the Trump administration, pursuing a tough trade agenda, launched a series of tariffs under what it called “reciprocal tariff” policies aimed at reducing the US trade deficit with major partners.

US President Donald Trump celebrated April 2 as America’s “Liberation Day” by announcing “reciprocal tariffs” against all major trading partners. Two sets of tariffs were announced. One, a base tariff of 10% against all countries, which represented a sharp increase from the pre-Trump 2.0 tariff rate of around 2.5%. Then there were country-specific tariffs; these tariffs were determined by estimating how much each of these countries charges on US goods and then halving that amount to calculate the “USA discounted reciprocal tariffs”. 

India was hit with a country-specific tariff rate of 26%. Donald Trump also shared a report from the US Trade Department that gave details of why each country was being tariffed. The report was critical of the Government of India’s increasingly protectionist stance since 2014. However, amid global pushback, US President Donald Trump on April 9 announced a 90-day pause on reciprocal tariffs on 75 countries, including India. 

Later, on the 31st July, President Donald Trump announced a 25 per cent tariff on Indian goods from August 1, with an additional but unspecified “penalty” for its defence and energy imports from Russia. On August 7, Trump increased the tariff from 25% to 50% on Indian goods shipped into the US.  The primary trigger for punitive duties on Indian exports was New Delhi’s continued import of discounted Russian crude oil, which the Biden administration and later Trump argued helped fund Moscow’s war in Ukraine and undermined Western sanctions.

(AI generated image)

Despite several rounds of talks, disagreements persisted through 2025, with Trump repeatedly warning that tariffs could rise further unless India cut Russian oil purchases. The situation pushed US–India relations to one of their lowest points in years, with Indian officials calling the tariffs “unfair and unjustified” and defending their energy policy as aligned with national interests.

The impasse eventually opened the door to a deal in early 2026, with tariffs being reduced as part of a broader agreement on trade and energy cooperation. Meanwhile, India aggressively expanded its trade network, signing major agreements to boost exports and investments. India signed major trade agreements with New Zealand, Oman, the UK and dubbed as the “mother of all deals”, the Free Trade Agreement with the EU.

Question 2: What are the key highlights of the India-US Interim Trade Deal?

Moving closer to a bilateral trade pact, India and the US unveiled Saturday (February 7) a framework for an interim trade agreement to lower tariffs and deepen economic ties after almost a year of negotiations. Some of the key highlight of interim deal framework are:

📍US to apply 18% reciprocal tariff: US will reduce tariffs on Indian goods to 18 per cent from 50 per cent. India will eliminate or cut down import duties on all US industrial goods and a range of American food and agricultural products. The first phase of the pact is expected to be signed by mid-March.

📍Relief under national security tariffs: India has secured concessions on certain aircraft and aircraft parts, tariff rate quotas for automotive parts and generic pharmaceuticals. “Contingent on the findings of the US Section 232 investigation of pharmaceuticals and pharmaceutical ingredients, India will receive negotiated outcomes with respect to generic pharmaceuticals and ingredients,” the statement said.

📍India to cut tariffs on US goods: India will eliminate or reduce tariffs on all US industrial goods and a wide range of US food and agricultural products, including dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, and additional products.

📍Non-tariff barriers to be addressed: recognising the importance of working together to resolve long-standing concerns, India also agreed to address long-standing non-tariff barriers to the trade in US food and agricultural products.

📍Trade, technology and supply chains: The joint statement said India “intends” to purchase $500 billion of US energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next five years. “In the event of any changes to the agreed-upon tariffs of either country, the United States and India agree that the other country may modify its commitments,” it stated.

(Credit: NotebookLM)

— As India announced a tax holiday for data centres, the joint statement said the two countries will “significantly increase trade in technology products”, including Graphics Processing Units (GPUs) and other goods used in data centres, and expand joint technology cooperation.

📍Mechanism to monitor import of Russian oil: The Trump administration has put in place a mechanism to “monitor whether India resumes directly or indirectly” importing Russian oil. Shubhajit Roy of The Indian Express writes, “The three elements – stopping Russian oil imports, buying energy from the US and boosting defence cooperation – are part of the larger strategic deal between India and the US.”

📍Preferential market access on both sides: Both countries agreed to provide each other sustained preferential market access in sectors of mutual interest and to ensure rules of origin that mainly benefit US and Indian producers.

Both sides have said the interim framework will be implemented quickly, while work continues towards a full and mutually beneficial trade agreement.

Question 3: What are the concerns related to the India-US interim trade deal?

Farmer unions under the banner of the Samyukt Kisan Morcha (SKM) have announced nationwide protests against the framework for the interim India-US trade agreement. Calling it a direct threat to Indian agriculture, dairy and rural livelihoods, the unions have announced protests culminating in a general strike today (February 12).  Other sectors have also raised concerns. In this context, let’s understand key concerns associated with the deal.

Farm Sector 

Although India has not opened up its market to imports of soyabean, corn (maize), fuel ethanol, cotton or dairy and poultry products from the United States, it has agreed to grant greater market access through elimination or reduction of tariffs for other American farm produce: DDGS, soyabean oil and “additional products”. Experts have raised some concerns regarding the farm sector.

Harish Damodaran of the Indian Express writes, “These (products), on the face of it, don’t represent significant threats to Indian farmers, given their limited domestic acreage or production. But it may not be as simple. To start with, the “additional products” are not specified.

Then take DDGS, which is basically a byproduct of ethanol manufactured from corn and other cereal grains. After ethanol is produced from fermentation of the starch in corn or rice and separated through distillation, the wet grain mash that remains is further dried. The resultant so-called DDGS is a protein-rich material that is a relatively low-cost alternative livestock feed ingredient.

The protein source that Indian poultry, cattle and aqua feed makers normally use is the residual de-oiled cake (DOC or meal) obtained after extraction of oil from soyabean, cottonseed, groundnut, mustard seed or rice bran. These are much costlier than DDGS.

To put things into perspective, the US is the world’s largest producer and exporter of corn as well as ethanol and DDGS derived from this feed grain. While India has shut itself to imports of American corn and ethanol for fuel use (i.e., blending in petrol and diesel), it has agreed to open up to DDGS from the US.  Thus, the main loser in the bargain would be Indian soyabean farmers and the processing industry, apart from local ethanol grain-based distilleries that sell DDGS from maize and rice as byproducts.”

Energy Security and Russian Oil Purchase

Regarding India’s purchase of Russian oil, the Trump administration on Saturday (February 7) issued an executive order lifting the penalty. It said India has “committed to stop directly or indirectly importing Russian Federation oil”, that “it will purchase United States energy products from the United States, and has recently committed to a framework with the United States to expand defence cooperation over the next 10 years.”

Shubhajit Roy of The Indian Express writes, “This step puts India in a diplomatically difficult position. After the Russian invasion of Ukraine, India had increased oil imports since Moscow was offering discounted rates. Delhi’s rationale was that its decision was guided by commercial interests since it wanted to cushion the inflationary impact of crude price hikes, and so it was buying from the lowest rate-offering countries, and Russia was the most competitive in that area. India also said that the government was not involved in the process of buying oil, and it was the companies that made the decisions. This worked well until Trump assumed office last year.”

Question 4: What are the potential benefits of the deal for India?

Beyond the concerns associated with it, the India-US interim deal also holds potential benefits for the Indian economy. Such as:

📍The Indian poultry, dairy and aqua industry will benefit from the increased availability of cheaper and probably better-quality DDGS from the US. That the DDGS is derived from genetically modified (GM) corn is another matter, though.

📍India’s livestock sector could also gain from reduced or zero duty imports of red sorghum (jowar) for animal feed. The US is the world’s biggest producer and exporter of sorghum, at a projected 11.1 mt and 5.4 mt, respectively, for the 2025-26 marketing season. US sorghum exports in 2024 were worth over $1.6 billion.

📍Non-tariff barriers such as approval processes in the United States have been a significant challenge for Indian manufacturers; the new deal gives hope to manufacturers that these would be addressed.

📍As part of their interim trade agreement, India and the United States have announced that they will “significantly increase trade in technology products, including Graphics Processing Units (GPUs) and other goods used in data centres, and expand joint technology cooperation”. Since India does not have a local GPU production capacity, with American companies like Nvidia leading the race globally, it is understood that New Delhi will import these commodities to meet the ever-growing compute needs of its startups building AI models and applications.

C Raja Mohan writes, “India’s interim trade deal with the United States marks a clear inflection point in New Delhi’s engagement with Washington. It decisively breaks from the defensive instincts that long shaped India’s negotiations with America and positions it well to navigate the emerging geo-economic contestations of the world with greater confidence.

As the political class and commentariat pore over the details, the most striking feature of the debate is that it is not really about the merits of the agreement. Instead, it is about India’s evolving relationship with the United States itself.”

P.S: Dear Aspirants, 

Some issues are developing stories, and hence it is important to keep an eye on the everyday changes and continuities. This issue is one such example. Therefore, it is advised to keep track of this topic through our other initiatives, like Knowledge nugget and UPSC Key. However, our attempt to provide conceptual clarity through this article on the issue so far will be beneficial for you at all stages of the exam.

Post Read Questions

Prelims

(1) In the context of global oil prices, “Brent crude oil” is frequently referred to in the news. What does this term imply? (UPSC CSE 2011)

1. It is a major classification of crude oil.

2. It is sourced from the North Sea.

3. It does not contain sulfur.

Which of the statements given above is/are correct?

(a) 2 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

(2) Consider the following statements:

1. India’s agricultural export to the United States has consistently increased from 2020 to 2025.

2. India maintained a trade surplus in agricultural exports to the United States in the last decade.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Mains

1. ‘What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India’s National self-esteem and ambitions’. Explain with suitable examples. (UPSC CSE 2019)

2. What is the significance of Indo-US defence deals over Indo-Russian defence deals? Discuss with reference to stability in the Indo-Pacific region. (UPSC CSE 2020)

(Sources: Trump’s 50% India tariffs, Sensitive sectors safeguarded, 25 per cent penalty is off, Farm give and take, challenge on soyabean, ‘Greater GPU access, more investment in data centres’, India–US interim trade deal framework, Why farmer unions strike against US-India deal, Why India-US digital services deal potentially intrudes into New Delhi’s sovereign policy space, Why closing the deal marks a decisive break in Delhi-DC dynamic)

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