India and the US have agreed to negotiate the first tranche of a “mutually beneficial” bilateral trade agreement (BTA) by fall of 2025, which runs from September to December, but US President Donald Trump’s reciprocal tariff plans could determine what final shape it would take.
“To advance this innovative, wide-ranging BTA, the US and India will take an integrated approach to strengthen and deepen bilateral trade across the goods and services sector, and will work towards increasing market access, reducing tariff and non-tariff barriers, and deepening supply chain integration,” per the India-US joint statement issued following Prime Minister Narendra Modi’s bilateral meeting with Trump on Thursday in Washington DC.
Threat remains
However, prior to the bilateral meeting, Trump delivered on his long-standing threat of imposing reciprocal tariffs on trade partners that impose relatively higher tariffs on American goods and enjoy a trade surplus. India had a $35 billion merchandise trade surplus over the US in FY24.
“I must say, India imposes a 30 to 40 to 60 and even 70 per cent tariff on so many of the goods, and in some cases, far more than that. And as an example, a 70 per cent tariff on US cars going into India, which makes it pretty much impossible to sell those cars today, the US trade deficit with India is almost $100 billion…,” Trump said at a joint media briefing with Modi after their bilateral meeting on Thursday.
He further pointed out that the two leaders had agreed that they will have negotiations to address the long running disparities with the goal of a signing an agreement.
A US-first situation
“While India is hoping to get some concessions at least, the BTA may largely be a tool for the US to gain concessions. Trump will not only look for lowering of tariffs but also insist that other issues such as standards and other non-tariff barriers be addressed,” an industry source said.
The US’ average applied Most Favored Nation (MFN) tariff (regular tariff applied on all trading countries) on agricultural goods is 5 per cent, but India’s average applied MFN tariff is 39 per cent, according to a fact sheet put out by the White House on Trump’s ‘fair and reciprocal plan on trade’. “India also charges a 100 per cent tariff on US motorcycles, while we only charge a 2.4 per cent tariff on Indian motorcycles,” the fact sheet noted.
The fact sheet mentions sectors or products as it suits the US, pointed out Ajay Srivastava from research body GTRI. “The US must choose a criteria: product or sector for transparent decision making. Else all the US efforts on MFN tariff cuts will end up benefitting China as it is the largest global supplier of industrial goods,” he said.