India-US mini deal may not have a breach clause, raising concerns about sanctity of agreement

US President Donald Trump and Prime Minister Narendra Modi hold a joint press conference in the East Room of the White House in Washington, DC, on February 13, 2025. (AFP)

India and the United States may be close to signing a trade agreement but the Indian side is worried about the sanctity of such a deal, given US President Donald Trump’s repeated threats to raise tariffs, sources have told Moneycontrol.

Trump said on July 6 that the US would impose an additional 10 percent tariff on any country aligning with the "anti-American policies" of the BRICS. India is a founding member of the grouping, which was meeting in Brazil for an annual summit when the threat was issued.

“This has become a contentious issue. While India wants assurance that tariffs remain once the agreement is finalised, the US has expressed reluctance,” one of the sources said.

India plans to have riders in the agreement to avoid deviations on tariffs but such a clause seems unlikely, at least in the mini deal. “The US won’t be willing to grant a clause that avoids breaches and reduces their power to impose fresh tariffs unilaterally at least in the mini deal,” a second source said.

‘A game of tennis’

A breach clause in a trade deal refers to specific obligations as well as actions that can be taken, including penalties, in case of deviation from agreed terms.

The absence of a breach clause, for now, pertains to the mini deal or the scaled-down version of the first tranche of a bilateral trade agreement (BTA), the deadline for which is the fall of this year.

India will tackle the situation if and when it arises since Trump’s latest salvo on BRICS, is so far a threat, not an actionable decision.

“If any new tariffs come, despite an agreement, we will take a call then. It is a game of tennis, and at that time India will play its part. It is just a statement so far, no action has been taken. If such action is taken, we will make a decision then on what to do,” a third source added.

India has already taken the US to the World Trade Organization (WTO) proposing retaliatory tariffs on sectoral levies imposed on steel, aluminium and automobile parts.

Trump’s 10 percent tariff threat came hours after BRICS leaders issued a statement warning that unilateral tariffs threatened global trade.

“Even if you have a deal there is no guarantee that there won’t be more tariffs,” a fourth source said.

Reports suggest that the Trump administration will not immediately impose the new 10-percent tariff against BRICS members but will proceed if countries take so-called "anti-American" policy actions.

This isn’t Trump’s first threat to BRICS, whose other founding members are Brazil, China, Russia and South Africa.  In November 2024, he threatened 100 percent tariffs on goods coming in from these nations, including India, if attempts were made to undermine the US dollar as the reserve currency of the world.

However, Trump never followed through with that plan.

From five, BRICS expanded to 10 members from January 1, 2024, with Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) joining the bloc.

With Trump, it is never a done deal

Global Trade Research Initiative (GTRI) in a note on July 8 pointed out that Trump’s unpredictability raises concerns that even signed deals may be revisited.

Even as the mini-trade deal may come soon, “New Delhi must tread carefully. With the US showing a willingness to override agreements and impose unilateral conditions… India must weigh the strategic value of engagement against the risks of an imbalanced deal,” GTRI’s founder Ajay Srivastava said.

Trump has slapped limited tariffs on Canada and Mexico despite having a free trade agreement with these nations.

The United States–Mexico–Canada Agreement or USMCA is a free trade agreement that entered into force in 2020, replacing NAFTA.

More concessions?

India is not looking to offer more concessions in the mini deal despite the pause on reciprocal tariffs being extended to August 1, the third source said.

“Trump has said we are close to the deal and he has to give final approval. We have held our position, whether it is acceptable or not, that is up to him. If he wanted to wrangle concessions and if we wanted to succumb, we could have done so before,” this source added.

But some are worried.

The fourth source cited above said, “While the trade deal should still come soon. It is completely up to Trump when and what to do. This gives him an extortion policy to keep arm-twisting countries to give more concessions. So now with the deadline extended, it gives him more time to ask for more, if he wants,” this source added.

Indian officials have made a final offer on the mini-trade deal and will not allow the US to use the extension on reciprocal tariffs to gain leverage.

“We will continue to discuss the larger Bilateral Trade Agreement (BTA). Additional leverage due to the August 1 extension does not mean we will grant more concessions for the mini deal, our offer stays the same,” the source said.

Trump’s reciprocal tariffs, including a 26 percent levy on Indian goods, will kick in from August instead of July 9 after a three-month pause, possibly lending more time to a trade deal with India.

India has likely drawn clear red lines resisting demands for sweeping concessions for American farm and dairy goods. New Delhi is also seeking significant duty cuts for its labour-intensive exports such as textiles and leather.

New Delhi has been negotiating the scaled-down version of the first tranche of BTA with the US to ensure that it escapes Trump's reciprocal tariffs.

The mini deal is likely to focus on securing exemptions from the 26-percent reciprocal tariff along with concessions on limited goods, with the BTA addressing more contentious issues.

While Trump has again spoken of a trade deal with India soon, New Delhi is not holding its breath. It is now up to the US President to step up to the plate and take a call, sources said.