India eyes tariff relief on key goods in return for ramping up US defence, energy buys

Prime Minister Narendra Modi and US President Donald Trump

New Delhi is considering ramping up imports of American defence equipment and energy to narrow its trade surplus with Washington in return for tariff relief on certain goods, a source privy to the negotiations told Moneycontrol.

The strategy is part of the talks for the first tranche of a bilateral trade agreement (BTA) between the two nations, which they are aiming to seal by fall.

“Strategy would be to buy more defence, aircraft equipment and oil to reduce US's trade deficit. We can also tell them to remove the 26 percent tariffs on India, at least on products where we have an edge versus China, Vietnam and Thailand since relatively higher levies have been proposed for them,” this source said.

India's merchandise trade surplus with the US was $41.18 billion in FY25.

US President Donald Trump has often raised the issue of America's widening deficit with India and has labelled the country as a “tariff king”.

While New Delhi is considering all tariff lines in the BTA talks, any duty cuts will be balanced “with the fact that by buying more of these products, India can help reduce America's trade deficit."

In FY25, the US again emerged as India’s top export destination, with an 11.6 percent growth in shipments at $86.51 billion. America was India’s fourth-largest import source nation at $45.33 billion, up 7.4 percent from the previous year.

Though the baseline tariff of 10 percent came into effect from April 5, Trump announced a 90-day pause on country-specific duties on all nations, barring China.

New Delhi faces relatively lower duty from the US at 26 percent compared to Indonesia (32 percent), and Vietnam (46 percent).

While the US imposed a 145 percent tariff on Chinese goods, Beijing has hit back, raising duties on American imports to 125 percent.

Trump’s reciprocal plan is based on narrowing US’s trade deficit with trading partners.

“India also wants to avoid a situation where our own trade deficit rises by cutting too much tariffs on products, so with purchases of more oil, defence and aircraft we can bring down US's trade deficit with us, ” the source cited above said.

During April-January of 2024-25, India bought crude oil worth $12.30 billion from US, up 9.3 percent on year, while purchases of aircraft parts from America fell nearly 30 percent to $1.22 billion during the period, data show.

The US is already a key defence partner of India as it is the second biggest importer of arms after Ukraine.

India bought nearly $15 billion worth of weapons from the US over the past seven years, until October 2024, according to Foreign Military Sales (FMS) notifications data compiled by Forum Arms Trade.