With less than a fortnight left for US President Trump’s reciprocal tariffs to kick in, a team of Indian negotiators landed in the United States on June 26, banking on a last-minute breakthrough to bring about a mini deal before July 9.
While India is keen to escape from the impact of 26 percent reciprocal tariffs, government officials are getting increasingly wary of a rushed mini deal that may lead to disproportionate gains for the US, Moneycontrol has learnt from people familiar with the progress on trade discussions.
“The duties faced by Indian products entering the US are already lower. From a trade deal perspective, US stands to gain more if we give concessions to them rather than India gaining by granting concessions. Of course, trade deal is not the best solution economically because the more efficient partner is displaced,” said a government official.
Washington is pushing hard for greater market access for its dairy and farm goods, while India has resisted the pressure to protect domestic farmers from an influx of foreign produce. From market access for genetically-modified crops to tariff cuts on apples, America's demands on farm produce are likely making trade talks with India increasingly complex.
Officials in the know told Moneycontrol that India is firm on its stand to protect these sensitive sectors, while also securing exemptions from sectoral and reciprocal tariffs.
The US has been reluctant to fully exempt India from Trump's steeper sectoral tariffs as well as on the baseline levy. It plans to impose 26 percent reciprocal tariffs on India, out of which a 10 percent baseline duty has already been implemented. There is also a steep 50 percent sectoral levy on steel and aluminium, and a 25 percent duty on certain automobiles and auto parts.
Giving more concessions to the US is difficult for India, as it has little to gain from a trade deal with the US unless it secures exemptions from the entire gamut of sectoral and reciprocal tariffs levied by Trump.
In a note on June 23, rating agency Crisil said India’s exports are unlikely to see a major spike because the focus of the Trump administration is to reduce its trade deficit with India, and most of India’s top outbound shipments to the US are already duty-free, sans the baseline duty of 10 percent from April 10.
The trip by the officials to the US comes after India and US held a round of talks in New Delhi between June 5-10, in which both sides hardened their stance over demands and concessions, especially with Indian negotiators refusing to grant sweeping access to American farm and dairy goods.
A second official said, “the talks are ongoing, but everything is on the table, there is no clarity yet on whether India and US will clinch an agreement after the current round of negotiations.”
Trump and other US officials have indicated they expect to clinch trade deals with many other countries soon, including India.
Even as India faces elaborate demands from the US, New Delhi wants an agreement that can be termed as a “win-win” back home, but given the tariff differential between the two nations, especially on agriculture and dairy, talks are turning complex.
The Trump administration has repeatedly criticised India for its high-tariff regime, especially on agriculture. The simple average tariff for farm goods in India is 39 percent, much higher than the US rate of 5 percent.
The trade deals with major economies are a livelihood issue for India, rather than a commercial one, according to the first official.
“There are some products where there is scope for concessions, like some were given in earlier trade deals too like with Australia. But it all depends, agriculture is a sensitive item for India since the livelihood of 45 percent of Indians depend on it. India has to protect the interests of a much larger population,” the first official added.
“US wants more”
India has already agreed to offer US significant tariff cuts on key products, including almonds, pistachios, walnuts and even limited concessions on apples and automobiles. Apart from that, also on the table is a zero-to-zero duty policy on industrial goods.
But officials say, “the US wants more.”
“If we had our way we would keep dairy and agriculture entirely out of trade talks with the US, even with the UK we did not budge on dairy,” a third official said.
Global Trade Research Initiative’s Ajay Srivastava has warned that talks may collapse if the US continues to insist on opening India’s core agriculture sectors, or allowing entry of GMO (genetically modified) products.
India for its part is seeking tariff cuts on labour-intensive products such as leather and textiles at it hopes to shore up exports to the US market.
But any concessions beyond just exemptions from Trump’s Liberation Day tariffs are unlikely, at least in the mini deal, which is a scaled down version of the Bilateral Trade Agreement (BTA), the deadline for which is Fall of this year.
The ambition to seal a mini trade deal with the US before July 9 could make it difficult for India to secure tariffs lower than the Most Favoured Nation (MFN) rates, owing to America's legislative compulsions, Moneycontrol had reported earlier.
The US administration needs Congressional approval to lower duties below the MFN rates. However, it has the jurisdiction to remove additional reciprocal tariffs it plans to impose on trading partners, including India. MFN rates mandate that WTO members treat each other's products equally in terms of tariffs and other trade regulations.
A silver lining comes from expectations that Trump may just extend the pause on country-specific tariffs, given that America is yet to clinch any substantial trade deals with majority of nations. The one with Britain is a limited one, with the 10 percent baseline tariff and the original 25 percent duty on steel still in place, while with China the US has come to an agreement to lift ‘restrictive measures’ and in return Beijing would ‘review and approve’ items under export controls.
“There are talks too that US may extend the deadline from July 9 and if they do that, then we can see other trade deals that are being brokered and then take a call,” according to the second official cited above.
India too may push the United States to extend the exemption window for Trump’s reciprocal tariffs since the two countries are yet to agree on the contours of the mini deal.
Win-win deal?
A rushed mini deal, however, may not be a balanced one.
Srivastava says that even if India offers cuts on MFN rates as well as limited concessions on key farm goods, the US at best will refrain from reimposing the controversial country-specific tariffs on Indian goods, without removing the 10 percent baseline levy.
“The US will not lower its own MFN tariffs on Indian exports. This means Indian goods will continue to face higher tariffs (MFN+10 percent), while US exports will enter India at reduced or zero duties - raising questions about reciprocity,” Srivastava added.
A trade deal between India and US may be crucial to escape Trump’s steeper tariffs, but India is not desperate, given that New Delhi won’t be at much of a disadvantage compared to others.
Talks for a trade deal are still on with the likes of European Union, Vietnam, Japan, Thailand, among others with little to no progress and therefore these nations also face steeper American tariffs from July 9.
A third official said, “we are not desperate for a mini trade deal before July 9, because it is not like trade deals are happening with every other country. The idea is to get a deal which is a win-win for both, India also wants to take something back home.”
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
