Trade talks between India and the US are entering the final lap, with the arrival soon of Jamieson Greer, US trade representative and his team. The two sides will attempt to thrash out differences that are blocking the India-US joint statement and the interim agreement, which are part of the larger bilateral trade agreement negotiations between the two countries. Piyush Goyal, commerce minister, has declared that India and the US are moving towards closing all the open ends of the interim trade agreement and both sides are likely to execute the ‘very, very vibrant’ first phase of the BTA by the middle of next month. The statement came close on the heels of the negotiator-level discussions, which were held between the two sides in New Delhi. India will need to handle this phase of deal-making with extra caution. It must also keep in mind that Donald Trump’s ‘tough guy persona’ has taken a serious beating of late globally – and he may be more amenable to give than take, to flaunt an achievement that burnishes his image.
If the deal happens soon, it will be a great confidence booster. The US President, through his military actions, weaponisation of tariffs and transactional diplomacy, has eroded the post-war international order and India has not been immune to the consequences. The last year-and-a-half has seen strains in the India-US relationship over trade, Russian oil and claims of American mediation during Operation Sindoor. Despite high-level engagement, including the recent visit of Marco Rubio, the US Secretary of State, to India, restoring trust between the two sides remains a work in progress. After a late start, India is now seen coming to terms with the structural shifts underway in American foreign policy.
Given that the US is India’s largest economic partner, not just in trade, but also in investment, technology and higher education, it is necessary that the fundamentals of the relationship remain strong. Hence, New Delhi has no choice but to adapt to and manage Trump for the remaining two-and-a-half years of his term, as neither open confrontation nor submissive behaviour is likely to work. This appears to be the most effective course available.
India’s core ‘red lines’ in trade negotiations with the US have centred on protecting the livelihoods of its farmers, fishermen and small-scale industries. New Delhi fundamentally refuses to compromise on key bottom lines, making specific policy demands non-negotiable. Any major dilutions of these demands will make the Modi government’s position politically untenable.
Any eagerness to rush towards a trade deal, even if the US dilutes its stance on these issues, should not impinge on the main goal of the trade deal: seeking a competitive advantage over rival nations before rolling out the much-delayed trade agreement with the US. While China is India’s most significant rival in manufacturing, technology hardware, and global supply chain dominance, it is in labour-intensive sectors like apparel, textiles and footwear that smaller Southeast Asian and South Asian nations like Vietnam, Cambodia and Bangladesh are our direct competitors. Indonesia is a major rival in agricultural exports (such as palm oil) and in various manufactured goods. While India’s 18 per cent US tariff places it in a slightly better position than several of these emerging Asian economies, it remains higher than rates enjoyed by some advanced economies and key US allies like the European Union, Japan, South Korea and Switzerland.
India should use the trade agreement with the EU, which will be signed by December and most likely to be implemented during February-March next year, as a model. With almost zero duty, almost the entire European market will now be open for us. The bulk of Indian shipments will enjoy duty-free access to the 27-nation bloc, while imports of luxury cars and wines from the EU will become less expensive. The EU deal is big because our trade accounts for 25 per cent of the global GDP and one-third (about $11 trillion) of international trade (about $33 trillion).
As a back-up, India should press for an automatic review mechanism in its proposed interim trade deal, like the sunset clause being introduced by the European Parliament in its trade agreement with Washington. The European Parliament, which is set to approve the EU-US trade deal, will now insert a sunset clause requiring the arrangement to expire on 31 December 2029, unless both sides agree to extend it. Before that, the European Commission will start a comprehensive assessment of the trade deal’s effects on EU industry, agriculture and small- and medium-sized enterprises and of changes in trade patterns with third countries. Our one-sided FTA with ASEAN should serve as a reminder in this connection.