The United States and India have recently engaged in high-level trade discussions, with Washington proposing a zero-to-zero tariff regime on nearly all goods, excluding agricultural products. This move could significantly impact the $118.2 billion bilateral trade relationship, offering new opportunities for businesses while also posing challenges amid growing global protectionism.
In This Artilce:
US Push for Zero Tariffs in India Trade Talks
Commerce Minister Piyush Goyal’s recent visit to Washington saw deliberations with the US Trade Representative (USTR) and the US Secretary of Commerce. The US has put forth a proposal seeking zero tariffs on most traded goods between the two countries, excluding agricultural commodities. The exclusion of agricultural goods aligns with Washington’s long-standing policy of protecting its farming industry from foreign competition.
India, which maintained a trade surplus of $36.8 billion with the US in FY24, may find this proposal favorable for its manufacturing and services sectors. However, it remains to be seen how both nations navigate the complexities of tariff negotiations while safeguarding domestic interests.
Trump’s Reciprocal Tariff Policy and Its Impact on India
Despite efforts to foster smoother trade relations, US President Donald Trump remains committed to his “America First” trade policies. In his address to a Joint Session of Congress following his second-term victory, Trump reiterated that several countries, including India, impose higher tariffs on American goods, calling such practices “unfair.”
Under the newly announced reciprocal tariff policy, effective from April 2, the US aims to align import duties on foreign goods with the tariffs those nations impose on American exports. This could pose challenges for Indian exporters who have benefited from relatively lower US tariffs. With sectors like engineering goods, electronic products, and pharmaceuticals significantly contributing to India’s exports to the US, the new tariff regime could reshape trade dynamics.
India-US Trade: Key Figures and Sectors
India’s Major Exports to the US
| Category | FY24 (US$ Billion) | April–Nov 2024 (US$ Billion) |
| Engineering Goods | 17.6 | 12.33 |
| Electronic Goods | 10.0 | 6.79 |
| Gems & Jewellery | 9.90 | 6.28 |
| Drugs & Pharmaceuticals | 8.72 | 6.34 |
| Petroleum Products | 5.83 | — |
| RMG Cotton & Accessories | 4.71 | 3.32 |
| Total Exports to the US | 77.5 | 52.95 |
India’s Major Imports from the US
| Category | FY24 (US$ Billion) | April–Nov 2024 (US$ Billion) |
| Mineral Fuels & Oils | 12.9 | 9.98 |
| Pearls, Precious & Semi-Precious Stones | 5.16 | 3.21 |
| Nuclear Reactors, Boilers & Machinery | 3.75 | 2.81 |
| Electrical Machinery & Equipment | 2.38 | 2.02 |
| Total Imports from the US | 40.7 | 29.63 |
Temporary Tariff Exemptions for Automakers
Amid rising trade tensions, the Trump administration has announced a temporary one-month exemption from the 25% tariff imposed on automakers in Canada and Mexico. The exemption applies to companies adhering to existing free trade agreements, offering temporary relief to an industry facing significant tariff burdens.
However, Trump has made it clear that broader trade disputes with Canada and Mexico remain unresolved, particularly regarding drug smuggling concerns. A recent phone call with Canadian Prime Minister Justin Trudeau reflected Trump’s skepticism about Canada’s efforts to curb fentanyl trafficking, indicating that broader trade tensions may persist.
Economic Implications and Future Outlook
- Potential Growth for Indian Exports: If India and the US agree to a zero-to-zero tariff framework, Indian exports in key sectors like electronics, engineering goods, and pharmaceuticals could gain a competitive edge in the American market.
- Challenges from Reciprocal Tariffs: The implementation of reciprocal tariffs by the US could impact Indian industries reliant on exports to the US, requiring businesses to reassess their pricing and supply chain strategies.
- Investment and FDI Growth: The US remains India’s third-largest investor, with cumulative FDI inflows of $67.76 billion from April 2000 to September 2024. Improved trade relations could further boost foreign investments in both nations.
- Shifts in Trade Balance: While India currently enjoys a trade surplus with the US, the proposed tariff changes could influence future trade balances, prompting Indian policymakers to explore new trade strategies.
The latest trade talks between the US and India reflect a complex and evolving economic relationship. While the US push for zero tariffs could benefit Indian manufacturers, reciprocal tariffs pose potential hurdles. The upcoming negotiations will determine how both countries balance economic priorities while fostering long-term trade cooperation. Businesses engaged in Indo-US trade must stay updated on policy shifts and prepare for possible tariff adjustments to navigate the changing landscape effectively.
By – Jyothi
