By Amitendu Palit
Indian exports to the US will soon face 25 per cent more tariffs. They might also face additional tariffs if the US imposes a ‘penalty’ for India’s oil and military sales from Russia. This was hardly expected when India and the US began negotiating a bilateral trade agreement (BTA) six months ago. At that time, India was in a ‘sweet’ spot. It had pre-empted President Trump’s demands and slashed several tariffs in the Union Budget.
Prime Minister Modi was one of the earliest world leaders to meet President Trump in his second term in office. The joint statement released during his visit to the White House mentioned the resolve of both countries to produce the first tranche of a BTA by the autumn of 2025.
India did not react to the US reciprocal tariffs announced on 2 April, 2025 that were later paused for 90 days. For some, though, it was surprising that India attracted 26% reciprocal tariffs even though it was negotiating a deal with the US. It was widely hoped that a deal would be reached before the tariff pause ended on 1 August.
Over time, the negotiations got increasingly complicated as global and regional geopolitics began to affect the context. The geopolitics continues to prevail, making the negotiations inconclusive. As a result, while both sides keep talking, the US reciprocal tariffs on Indian exports will kick in unless a truce is reached soon.
What are the geopolitical issues holding back a deal?
The first is the US ‘role’ in mediating a ceasefire between India and Pakistan during their hostilities in May. President Trump has repeatedly claimed credit for brokering a ceasefire. India has denied this. The US, however, continues to count the President’s claim among a range of conflicts that he has ‘ended’ over the last few months, for which, according to the White House, he should be considered for the Nobel Peace Prize! India’s denial is a snub that is not helping in this regard.
The second political flashpoint is over Russia. President Trump’s failure to broker peace between Russia and Ukraine has led to a situation where the US wants to squeeze Russia economically. It is doing so by penalising countries that have close economic ties with Russia. India figures among these countries due to its significant purchases of Russian oil and military products.
A third political factor is India’s membership in the BRICS bloc. President Trump considers BRICS to be distinctly ‘anti-American’, especially in its agenda of de-dollarisation. His ire with BRICS has increased since the Rio Summit of the group in early July. BRICS’s trenchant criticism of the US’s protectionist trade policies, without naming it, has aggravated his displeasure with the bloc. It is hardly surprising that some BRICS members have been the hardest hit by the US tariffs. This includes 50% tariffs on Brazil and 30% on South Africa, apart from 25% on India.
Furthermore, the presence of Iran in BRICS, and the US’s acrimony with Iran, has also rubbed off on the US’s trade treatment of India. The US has sanctioned various global businesses, including six from India, for engaging in petrochemical trade with Iran. India’s ‘Iran’ link has become a sore point for the US.
Are there hopes of India and the US reaching a deal?
Ostensibly, there is hope, since both sides continue discussing. But getting there will need either India compromising substantially or the US scaling back its demands. Getting to a deal is no longer a matter of pure trade or economics.
To reach a deal, the US will demand more than what India has offered in its market access commitments, including India conceding on what President Trump describes as ‘obnoxious non-monetary trade barriers’. This is the ‘price’ India would pay for not ‘aligning with US economic and national security interests’.
If the US scales back its demands for whatever reasons, then it is, of course, a different issue. But otherwise, India needs to be careful about the implications of conceding to the US for geopolitical reasons. There is no guarantee that the US will not demand more difficult concessions in the future. As it has shown in the current context, it will not hesitate to use political proxies, like its proposed economic deals with Pakistan, to exert pressure.
It is important for India to hold the line on difficult demands. The tariffs, no doubt, will affect market prospects for quite a few Indian exports. But FTAs with the UK, EU, Canada, and other countries provide options to diversify. And the booming services trade with the US will continue. The substantial number of US businesses engaged with India in services trade, especially through Global Capability Centres (GCCs), will ensure that the trade doesn’t get disturbed. It is in the larger US revenue interest to see that it continues undisturbed!
(Amitendu Palit, Senior Research Fellow and Research Lead at the Institute of South Asian Studies in the National University of Singapore.)
Views are personal and do not represent the stand of this publication.
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