A potential trade deal between the United States and India has to overcome a number of hurdles even as the warm messages exchanged between President Donald Trump and Prime Minister Narendra Modi raised hopes of an early end to the present standoff.
Over two-third of Indian merchandise exports to the US is now facing 50 per cent tariff, the highest in the world, apart from Brazil. It included an additional 25 per cent duty imposed by the US for continuing to purchase Russian crude oil and ostensibly funding Kremlin’s war in Ukraine.
Less than a week ago, Washington justified its action of slapping punitive duty on India before the US Supreme Court to defend President’s Trump’s use of emergency power to impose sweeping reciprocal tariff across countries.
The filing explicitly cites India’s Russian oil purchases to justify keeping all tariffs.
“In addition, the President recently authorised IEEPA (International Emergency Economic Powers Act) tariffs against India for purchasing Russian energy products, to deal with a pre-existing national emergency regarding Russia’s war in Ukraine, as a crucial aspect of his push for peace in that war-torn country,” the filing by the US government read.
For India, any meaningful progress in the trade negotiation would involve taking off the 25 per cent additional duty, which came into effect from August 27. However, removing tariffs now would weaken Trump’s own court case, making any relief for India highly improbable, Ajay Srivastava, founder of policy think tank Global Trade Research Initiative, observed.
Dairy and agriculture
Before the imposition of the additional tariffs on July 31 and August 27, India had hoped to secure a trade deal with the US, aiming for a 15 per cent tariff rate — lower than what its Southeast Asian competitors face.
However, India was unwilling to open up its politically sensitive agriculture and dairy sectors to American imports, particularly those involving genetically modified
(GM) products.
These sectors are both labour-intensive and critical for domestic political stability, making any concessions highly contentious.
Since then, the two countries have not engaged in any formal discussion with US trade representatives to conclude the bilateral trade agreement.
A meeting scheduled for the last week of August was called off indefinitely.
It would be challenging for the Modi government to accede to the US demand, given that it would likely face strong opposition from all quarters of the social and political spectrum.
The two countries also have to find a way to deal with the sectoral tariff that the Trump administration imposed on steel and aluminium products. India has already taken up the matter at the World Trade Organisation.