MC EXCLUSIVE India may seek extension on US reciprocal tariff deadline amid differences over mini deal contours

Indian Prime Minister Narendra Modi with US President Donald Trump

India may push the United States to extend the exemption window for President Donald Trump’s reciprocal tariffs, set to kick in from July 9, since the two countries are yet to agree on the contours of a mini deal, sources told Moneycontrol.

“There should be an extension because the US hasn’t got a deal with anyone. UK is a limited deal, China is an understanding on rare-earth metal, so it is not a full-fledged deal; so the US has not yet got a proper deal with anyone,” one of the sources said.

To be sure, there is no official confirmation yet from the US negotiators on a possible extension to the pause on reciprocal tariffs, a second source said.

India and the US are currently negotiating a mini deal or a scaled-down version of the first tranche of a Bilateral Trade Agreement (BTA), the timeline for which is around September.

With a fragile ceasefire between Israel and Iran in place and crude oil prices cooling off consequently, Trump’s July 9 date for higher tariffs on several countries will be the next crucial event for global markets.

While a team from India’s Ministry of Commerce is set to visit the US soon for talks over the mini trade deal and the first tranche of the BTA, differences over market access and tariff cuts pose challenges to agreeing on a smaller version by early next month.

These differences specifically pertain to what exactly should the mini deal include in terms of sectors and concessions.

Contentious issues

The major area of difference between the two sides is over the US’s demand to grant greater access for their farm and dairy goods.

The second source cited above added, “There are challenges, especially on dairy and agriculture, which are sensitive sectors for us, so we have to be very careful.”

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.

Apple, corn and soybean have emerged as sticking points in the trade talks between India and the US, which may prolong negotiations and delay the scaled-down version of the proposed BTA.

Moneycontrol had reported earlier that India is reluctant to accept America's demand to open up its market to genetically-modified crops given concerns over the impact on domestic producers.

Both agriculture and dairy are sensitive sectors for India.

Not too long ago, in 2021, India dropped out of the Regional Comprehensive Economic Partnership (RCEP) FTA involving the Association of Southeast Asian Nations (ASEAN), citing its negative effects on farmers and the dairy sector.

“We have always protected our agriculture and dairy sectors when it comes to trade deals. Even in the deal with Britain, we kept dairy out,” the second source said.

Apart from that, the US’s refusal to entirely exempt sectoral tariffs of 50 percent on steel and aluminium and another 25 percent on certain automobiles and their parts has further complicated talks between the two countries.

“The US is so far refusing to include sectoral tariffs in the talks for the deal. The BTA has to take into account these steeper duties,” the first source said.

India is hopeful that the legal issues around Trump’s reciprocal tariffs back home may also help New Delhi secure an extension.

“The reciprocal tariffs are in a legal tangle in the US, so there is a higher possibility of extension,” the second source said.

Rulings by two district courts in the US that Trump's tariffs are not justified under the International Emergency Economic Powers Act are currently on appeal.

However, America’s Supreme Court last week declined a request to fast-track a consideration to review these higher tariffs even before the lower courts have come to a decision on this.

Is July 9 crucial?

While India and the US are still looking to broker a mini deal before July 9, sources indicated that even if New Delhi misses the deadline, it won’t be at much of a disadvantage compared to other nations.

“It won’t make a difference if we don’t have a mini deal before July 9, because every country is in the same boat. It is not like 20 people have got a deal with the US and India is slacking. India could see the contours of a few deals before making one,” the first source said.

The US president on April 2 had imposed reciprocal tariffs on select countries but reversed his decision on April 9 while keeping the 10-percent baseline duty on all imports entering American shores.

The pause on these country-specific duties, including 16 percent on India, will end on July 8.

“India won’t be at a disadvantage because everyone else will face higher tariffs from July 9. Another question mark is whether Trump will even keep to his trade deals, so India might as well wait and watch,” the first source said.

New Delhi has been seeking an exemption from the entire 26-percent reciprocal tariff from the US through the trade deal.

The two countries held a round of in-person talks between June 5 and June 10 in New Delhi.

“Even if we miss the deadline of July 9, what will happen, tariffs will go back to April 2 levels? So, India will lose in some, gain in some, because it is not like trade deals (with the US) are happening with other nations,” said the first source.

While the UK has secured a limited trade deal with the US without securing an exemption from the 10-percent baseline tariff as well as a 25-percent duty on steel and aluminium, with China, America has brokered an understanding until mid-August.

Talks for a trade deal to escape Trump's reciprocal tariffs are still on with the likes of European Union, Vietnam, Japan, Thailand, among others.