Delhi deploys Down Under playbook to dodge looming Trump tariffs

Prime Minister Narendra Modi and US President Donald Trump

India is employing an approach it used to clinch a key trade deal with Australia over two years ago in order to broker quick agreements with the US and Europe before the steep reciprocal tariffs kick in from July 9.

The India-Australia Economic Cooperation Trade Agreement, in operation since December 2022, is a scaled-down version of a broader pact which is presently under negotiations.

With the US and European Union (EU) too now, New Delhi is aiming to finalise the trade deal in tranches in a bid to escape the looming threat of US President Donald Trump’s country-specific tariffs, paused till early July.

While Trump’s 10 percent baseline tariff has been operational, the country-specific duties, including 16 percent on India, are expected to be implemented in about 45 days.

The Australia model

After more than 10 years of negotiations, India and Australia signed an early harvest deal in 2022, a mini version of a comprehensive trade agreement.

The deal allowed for zero duty on 96 percent of exports from India to Australia, and would then cover 100 percent of the trade from January 1, 2026. New Delhi agreed to eliminate tariffs on 85 percent of inbound shipments from Canberra, increasing to 90 percent from next year.

The scaled down deal was aimed at enhancing Indian exports of gems and jewellery, textiles, leather, footwear, furniture, food, engineering products, medical devices, and automobiles, while Australian coal and mineral ores were seen to be getting a boost.

However, a closer look at the data reveals that merchandise trade between the two nations has slowed down since the deal was implemented to $24.1 billion in FY24 from $25.04 billion in FY22.

Notably, both sides are currently negotiating a Comprehensive Economic Cooperation Agreement (CECA), building upon the interim pact.

Talks for the CECA were launched in February 2023 and as many as 10 rounds of negotiations have been concluded.

India’s reasons for opting for mini trade deals is not only due to the paucity of time but also owing to the nation’s need to protect sensitive sectors like dairy.

Back in 2022, the former Trade Minister of Australia, Dan Tehan, explained that dairy and beef were not included in the mini pact given the sensitivities around such sectors for India.

“India still has a very large agricultural sector. There is, I think, about 160 million farmers in India, and so one of the things (Minister of Commerce and Industry) Piyush Goyal and myself talked about was where there were sensitivities, how we would work through them,” he had said while briefing reporters on the matter in April.

From US to EU 

India is currently negotiating trade deals with a slew of blocs and nations, notably the US and EU. But, as Trump’s steeper tariffs are expected to make a return soon, New Delhi is opting to strike the deal in tranches instead of waiting for the full monty to pan out.

While, the US and India are still planning to finalise the first tranche of a Bilateral Trade Agreement (BTA) by September 2025, negotiators indicate that the two sides will firm up a smaller deal by July 8 in a bid to secure exemptions from Trump’s 26-percent tariffs.

India and the US are currently discussing the contours of the trade pact as part of Mission 500, a broader initiative aiming to more than double bilateral trade to $500 billion by 2030.

New Delhi has so far offered zero-to-zero tariffs for industrial goods, while the rates on other items are still being negotiated, given the sensitivity of the farm and dairy sectors.

Even with the EU, India is focussing on brokering the Free Trade Agreement (FTA) in tranches to secure a scaled-down version of the deal by July 2025 to protect exporters from impending steeper tariffs.

In February, India and EU agreed to ramp-up talks and close the deal by 2025-end to tide over potential tariff troubles. The decision was taken during European Commission President Von der Leyen’s two-day India visit with a 27-member delegation.

However, in a bid to beat the July-deadline, both sides are now looking at an interim, or early harvest, trade agreement before the larger pact.

As Commerce Secretary Sunil Barthwal pointed out on April 15 while talking about the decision to do an interim deal ahead of a larger FTA with EU, “better to focus on core trade issues…. so that we can do a deal faster.”

Striking interim pacts before larger trade deals with the likes of the EU and the US is key given their significant share in India’s trade.

While the EU is India's largest trading partner, accounting for 12.2 percent of Indian trade, the US is the biggest buyer of Indian goods worth $77.5 billion in FY24.