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Navigating the Indo- US Trade Framework: Gains, Risks, and Prospects

In international negotiations, patience often precedes progress, as demonstrated by India’s extended wait for a trade breakthrough with the United States. The patience finally seems to have paid off when Prime Minister Modi and President Trump publicly announced their agreement on a trade deal. On February 7, early morning, a joint statement was released by The White House and PIB illustrating the success over the finalization of a framework for an interim agreement regarding the upcoming BTA. The tabling of the formal communiqué clears the air of the tensions that were earlier created by the somewhat contradictory social media announcements by officials on both sides. But what the details actually entail is what needs to be studied in order to reach the conclusion of it being advantageous or not.


A Long-Awaited Breakthrough


As a major early move in his presidency, Trump, in order to bring the trade deficit America shares with its trading partners to an equilibrium, raised the tariff rates on various countries by double digits. This move sent waves throughout the global markets, the effects of which were felt by many. Narendra Modi was among the few leaders who took a headstart and met Trump in the early days of his term. That meeting involved trade at the centre stage of discussions and is a true reflection of the strenuous efforts dedicated towards the accomplishment of a mutual agreement between the two countries. Throughout the year multiple flights have been exchanged between the officials on both sides to work upon the intricacies of the deal but little success was achieved given the issues at hand. But a few days after the conclusion of the India-EU FTA we recorded a breakthrough with the US too. Shortly after the arrival of Sergio Gor, U.S. ambassador to India, the jubilant news of lowering tariff rates and a settlement on a trade deal was delivered.   


Key Areas of Concerns


What concerns analysts and still strikes a nerve are the implications that might follow. On Indian soil, the triggering point remains the farming sector and anxiety rose when Trump on his social media stated, “We spoke about many things, including Trade, and ending the War with Russia and Ukraine. He agreed to stop buying Russian Oil, and to buy much more from the United States, and, potentially, Venezuela.” 


“United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%. They will likewise move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO.”


“The Prime Minister also committed to “BUY AMERICAN,” at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products.”


On the other hand, Indian posts regarding this were evasive and reticent, staying silent on points of concern. 


The joint statement reaffirms that tariff rates will be cut down and that India agrees to reduce tariffs on a wide range of U.S. food and agriculture products, including dried distillers' grains (DDGs), tree nuts, fresh and processed fruit, and additional products.


Agriculture Pressure Points 


The agriculture sector ostensibly remains the major subject of conflict and distress. Historically, Indian administration has always shielded the farmers’ vulnerabilities, especially in the globalised world. This protectionism, though rational, has been a challenge for the U.S. for a long time. India’s resistance to Genetically Modified Crop Products, cereals, ethanol, wheat and rice is justified on the grounds of food security and the fact that the majority of the population depends on agriculture for their livelihood. However, Indian Commerce Minister, Piyush Goyal reassured that food and agriculture remain fully safeguarded, despite which domestic politics has raised concerns over India’s subservience and whether the strategic autonomy is compromised. There are no doubts in the fundamental policy followed by Bharat in matters of diplomacy, which is, nation first and the intention of the government for making public the largest beneficiaries. India has time and again shown that trade or strategic ties do not translate into political obedience, which makes India’s individuality stand out, producing a bold image on the global stage. Also, the limited or selective accommodation carried by India, not capitulating completely to foreign demands shows that mutual settlements do not mean conceding one's own interests.      

 

Energy Trade & Russian Oil Quandary 


Another concern lies in the claim by Trump over the agreement that India will no longer buy oil from Russia, which carries its own ramifications. Albeit, it is highly unlikely that India will stop buying from Russia altogether because it is one of the biggest trading partners of India. Trump has long insisted on pulling the lever on sales of oil from Moscow, as a consequence of which the imports fell to their lowest in December last year. Many domestic companies have also concluded their contract with no furtherance of the same. If the purchase from Moscow stops, India will no longer benefit from the discount that is offered and oil will be bought at higher prices, which could mean heightened petrol prices for the public. Inflation is an inevitable casualty in this process, rising from the present controlled rate to a higher one, resulting from the increased imports, weakened rupee and rising oil prices. The Joint Statement mentions nothing about this aspect.


Trade deficit, Sectoral composition & Policy Accommodations


The total trade between the two countries amounted to $129.2 billion in 2024, with the US exporting $41.8 billion in goods to India and importing $87.4 billion. It creates a trade deficit of over $40 billion, favouring India. Primarily, the products exchanged are fuels, precious metals, pearls, stones, aircraft, mechanical appliances, and parts along with pharmaceutical products, textile and iron & steel. Cotton imports have seen a rapid rise since last year, with soybean oil.


U.S. has agreed to lower tariffs on many Indian origin product, including textiles and apparel, plastic and rubber, organic chemicals, and certain machinery. Along with generic pharmaceuticals, gems and diamonds, and aircraft parts. India will also receive a preferential tariff rate quota for automotive parts. On the Indian side, long-standing barriers to the trade in U.S. medical devices and Information and Communication Technology (ICT) goods will be addressed. 


Many visible changes have been accommodated by the Indian government to address the issues raised by America, from cutting duty on products such as Bourbon whisky and Harley Davidson to introducing SHANTI bill to liberalise the domestic nuclear sector. To reach the goal of $500 billion in the next 5 years, it might put the present lopsided trade deficit outside the benefit of Indian hands. For the prolonged period of heightened tariffs, India was set back from the rest of its neighbours with relatively much higher tariff rates. As the competitors faced lower tariffs, it made them a more attractive option. And in 2019, India got off the list of countries those advantaged from the U.S. Generalised System of Preferences Concession, despite being a developing country, further weakening its position. But the revised rates now stand at a lower rate than before and may have positive outcomes, given that the deal got formally acknowledged.


“India intends to purchase $500 billion of U.S. energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next 5 years. India and the United States will significantly increase trade in technology products, including Graphics Processing Units (GPUs) and other goods used in data centers, and expand joint technology cooperation.” the statement notes, which could open new avenues for India in technological advancement and provide it an opportunity to become a manufacturing and designing hub. Viewed in its entirety, the deal implicates both success and downfall, depending on its implementation. If successful, it would result in enhanced market access, accelerating India’s exports in sectors of pharma, textiles, IT, and more. Serving to the Make-in-India initiative there will be a boost in domestic manufacturing, creating more jobs. Contrarily, if it falters, it will yet again set India back in the race allowing its competitors to take advantage. Further complicating economic, strategic and geopolitical risks, costing India future opportunities and slowing down its overall economic growth.     


Supply Chain Realignment & Regional Strategisation    


The cumulus nimbus of uncertainty has scattered to some extent by this formal announcement, but the course of future decision and policy framework must not be determined with impetuousness but with careful deliberation and caution. For a long time, China and America have occupied the spot as the top trading partners for India. But the threat China poses and the mercurial temperament of American politics has put a steaming pressure on India's internal decision making bodies. Dependence on China is a challenge both US and India are trying to tackle and both have recalibrated their economic and trade reliance away from Chinese market by diversifying their usual routes. For the US, India remains an attractive market with a large consumer base for both consumption goods as well as security and defence engagement. Tariff reduction ensures goods exchange on greater scale for both sides and the emphasis on technological collaboration, particularly in areas mentioned in the statement such as, GPUs, data centres and India’s own semiconductor ambitions, with a hard push for MSMEs will prove to be of great benefits putting India on the road of becoming a future manufacturing hub. 


In the Indo-Pacific region, while economies of Japan, South Korea, Australia, India acts as anchor for the US, China remains strategically constrained. Post COVID, China’s dominance in REM and semiconductors has deemed de-risking and diversifying as a necessity. The interim deal positions India uniquely amongst other Indo-Pacific partners of America, with an offer for greater scalability, reliability and flexibility. In contrast to its traditional European partners, EU, UK with relatively smaller return value and market, and the Gulf economies which primarily provides energy and capital, India stands as a strong alternative with its market size, manufacturing capabilities and internal stability.   

Trump's capriciousness has sketched a volatile trajectory, with sudden swings in an astonishingly short period. He is a businessman by nature, and if there is one thing business and diplomacy share, it is convenient truths.


As blunt as Trump poses to be, his words inspire a little guarantee. For India, what remains prudent is the exploration of new markets as the traditional trading sphere is characterised by turbulent factors, creating new rational market spaces will ensure a backup or safe space. A cardinal rule of business is to never rely on a single customer, accordingly India should not put all of its eggs in one basket and should create better lucrative alternatives that will serve its interests in the best possible.  


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