The U.S.A- India trade agreement -Why it remains as an incomplete business
Overview of why the U.S.–India trade agreement remains incomplete, the core differences holding up progress, and practical recommendations to move toward a durable, mutually beneficial outcome.
1. Why a Deal Has Not Been Reached
Domestic Sensitivities & Political Risk
India: Agriculture, dairy, and ethanol sectors support nearly half the population and are politically sensitive. India has firmly refused to lower tariffs on GM maize, ethanol, poultry, or dairy, due to cultural, food security, and political imperatives. Lowering these protections would spark domestic backlash.
United States: The U.S. seeks meaningful access for its farm, dairy, and processed food exports. U.S. negotiators see non-agricultural sectors (e.g. textiles, tech services) as less urgent relative to agriculture, which remains a negotiating priority.
Tariff Imbalance & Reciprocal Measures
India’s average import tariff sits around 12%, with some sectors exceeding 30%. The U.S. average is only ~2.2%. The gap fuels U.S. criticism and rationale for corrective “reciprocal tariffs” (e.g. 25–27% duties imposed).
India had offered partial reductions on non-sensitive imports worth ~$23 billion, but those offers hinged on relief from U.S. retaliatory tariffs—creating a deadlock.
Strategic & Diplomatic Frictions
Russian oil purchases remain a major sticking point. India’s oil imports from Russia, accounting for over a third of Russia’s total, drew strong U.S. threats of tariffs, which New Delhi sees as inconsistent with U.S. policy toward other countries.
Political interference—such as U.S. political statements on India-Pakistan issues—undermines trust in negotiations, making deeper trade alignment difficult.
2.Main Points of Difference
Issue Area U.S. Position India’s Position
Agriculture/Dairy Market access for U.S. products (corn, dairy, GM) Protect domestic farmers, no concessions on GM foods or ethanol
Tariffs Wants lower Indian tariffs and elimination of non-tariff barriers Seeks relief from U.S. reciprocal duties before concessions
Energy & Oil Opposes India’s Russian oil imports Prioritizes national energy security and diversification
Digital Data Flow Pushes for liberalized cross-border data policies Upholds data sovereignty and localization
3. Why a Trade Agreement Still Matters
Strategic Alignment: Both nations share mutual interests in AI, defense, space exploration (e.g. iCET, NASA–ISRO NISAR), counterterrorism, and geopolitically balancing China.
Economic Promise: Bilateral trade totals over USD 130 billion. The U.S. is a key investor and consumer of Indian goods and services, especially generics and software. A deal could pave the way toward a USD 500 billion trade target by 2030.
4. Recommendations for a Lasting Agreement Short-to-Medium Term
Phase I “Mini Deal”: Start with non-sensitive sectors—lower tariffs on industrial goods, textiles, pharmaceuticals, and digital services. Defer agriculture and energy issues to later rounds.
Partial Tariff Relief: The U.S. should suspend or reduce reciprocal tariffs (25–27%) as a gesture of good faith while deeper talks continue.
Enhance Data Standards Dialogue: Establish a working group on digital governance, balancing U.S. concerns with India’s data localization policies.
Strategic Trust-Building Measures
U.S. should respect India’s need for strategic autonomy in energy and diplomacy, avoiding tariff threats tied to Russian purchases.
Regular high-level 2+2 dialogue (External Affairs & Defense) should institutionalize diplomatic norms and maintain mutual respect.
Long-Term Framework
Design a multi-phase trade framework: Phase I for industrial/digital goods; Phase II for agriculture/dairy/ethanol with tailored safeguards; Phase III for sensitive emerging tech sectors.
Create special carve-outs or thresholds: For instance, India could allow U.S. ethanol imports up to a capped volume or under joint-purpose contracts, protecting domestic programs like ethanol blending.
Institutionalize annual strategic reviews integrated with Quad or climate fora to align trade with broader geopolitical and sustainability goals.
5. Strategic Implications Beyond Trade
Even without a comprehensive trade deal, defense cooperation, space programs, AI initiatives, and counterterrorism collaboration continue to progress through diplomatic, military, and research channels. However, unresolved trade friction can bleed into these areas, causing uncertainty around joint projects or FDI decisions.
By adopting a phased, sector-specific approach that respects domestic political realities, both countries can build a climate of mutual trust while gradually unlocking new areas of collaboration.
Summary
A long-lasting U.S.–India trade agreement will require a balanced give-and-take:
U.S. must show flexibility via tariff relief and respect for India’s sovereignty in key areas;
India should offer liberalization in services and industrial sectors, commit to further market access in calibrated steps.
This phased approach will help preserve political buy-in, protect domestic interests, and sustain the broader strategic partnership.
Source : Navabharath.in