Summary
The United States and India are engaged in high-stakes negotiations toward a comprehensive bilateral trade agreement that could reshape their economic partnership and influence global trade dynamics. This prospective deal, highlighted by statements from U.S. Treasury Secretary Scott Bessent, positions India to take a leading role in signing and shaping future trade agreements due to its comparatively low tariff barriers and rapidly expanding market. With bilateral trade exceeding $190 billion in 2023 and the U.S. running a significant trade deficit with India, both countries see substantial potential for growth in goods, services, and technology sectors through enhanced cooperation.
The proposed agreement aims to reduce tariff and non-tariff barriers across multiple sectors, including agriculture, manufacturing, digital trade, and clean energy technologies, while promoting job creation and investment on both sides. It builds upon existing frameworks such as the US-India Strategic Clean Energy Partnership and the Defence Acceleration Ecosystem, reflecting a broader strategic and economic alignment beyond mere trade. Negotiators have formalized terms of reference to guide discussions, with the goal of concluding the deal by late 2025.
Despite this progress, the talks have faced significant challenges and controversies. The imposition of reciprocal tariffs by the U.S., initially set at 26% on Indian exports and later reduced to 10%, has introduced economic uncertainties and sectoral impacts in India, complicating negotiations and eliciting concern among exporters and policymakers. Furthermore, longstanding trade disputes, regulatory differences, and geopolitical factors, including divergent approaches to market access and domestic industry protection, continue to temper optimism about a swift resolution.
Overall, the evolving India-U.S. trade relationship reflects a complex interplay of economic opportunity and strategic partnership, with the potential trade deal seen as a milestone in elevating India’s global trade leadership. While market analysts and government officials remain cautiously optimistic about a “win-win” agreement, successful completion will require navigating sensitive domestic interests and international trade norms amidst shifting geopolitical landscapes.
Background
The economic relationship between India and the United States has evolved significantly in recent years, marked by substantial growth in bilateral trade and strategic cooperation across multiple sectors. In 2023, bilateral trade between the two nations surpassed $190 billion, reflecting a robust partnership driven by complementary strengths in both merchandise and services trade. India remains one of the few countries with which the United States runs a goods trade deficit, which reached $45.7 billion in 2024, a 5.1% increase compared to the previous year.
India’s major exports to the US include engineering goods, electronic goods, gems and jewellery, pharmaceutical products, light crude oil, petroleum, and electrical goods. Bilateral trade stood at a record US$118.2 billion in the fiscal year 2023-24, underscoring the importance of the US as India’s largest trading partner. The ongoing trade relationship also benefits from a series of agreements aimed at reducing tariffs and trade barriers, such as those discussed during high-level meetings including Prime Minister Modi’s Official State Visit to the United States and sessions of the US-India Trade Policy Forum.
Both countries have demonstrated their commitment to fostering industrial growth, innovation, and economic integration through multiple frameworks. These include addressing ongoing trade disputes within the World Trade Organization, where six disputes—equally initiated by India and the US—are being resolved to facilitate smoother trade relations. Beyond trade, the partnership encompasses cooperation on global security, multilateral governance, and technology sharing arrangements, which have further deepened US-India ties and positioned India for a larger role on the world economic stage.
In addition to bilateral agreements, India participates in various preferential trade agreements such as Free Trade Agreements (FTA), Comprehensive Economic Cooperation Agreements (CECA), and Comprehensive Economic Partnership Agreements (CEPA), which collectively enhance trade facilitation and rule-making in areas like intellectual property and technical standards. The growing cooperation and expanded economic engagement between India and the US set the stage for India’s emerging leadership in future trade deals, as emphasized by recent statements from US officials. This background highlights the foundation upon which India is poised to take a leading role in global trade negotiations.
Recent Developments
In 2023 and 2024, significant progress has been made in the India-US trade relationship, marked by intensified negotiations toward a comprehensive bilateral trade agreement. US Treasury Secretary Scott Bessent has played a key role in these talks, expressing optimism that a deal is “very close” to fruition due to India’s relatively low tariff barriers compared to other nations. His involvement aims to provide a clear framework or “template deal” to boost market confidence and facilitate the final stages of negotiation.
The two countries have already taken steps to enhance cooperation in various sectors, including energy, defense, and strategic technologies. India’s Energy Minister Hardeep Singh Puri highlighted the vast trade potential, estimating it could exceed $500 billion through deeper collaboration in renewable energy, biofuels, and carbon management technologies—aligning with India’s target to reach net-zero emissions by 2070 with critical US technology support. The strategic partnership also includes initiatives such as the US-India Strategic Clean Energy Partnership and the establishment of the US-India Defence Acceleration Ecosystem (INDUS-X) to foster joint innovation in defense technologies.
Trade dynamics have seen fluctuations, notably with the imposition of a 26% “reciprocal” tariff on Indian exports by the US in April 2023, which was later suspended for 90 days and replaced by a 10% baseline tariff. These tariffs have had multifaceted effects on Indian export sectors and industries, with impacts contingent on tariff duration and industry adaptability. Despite these challenges, India’s consumer-driven economy and its significant services sector, which remains largely tariff-free, provide a strong negotiating position in trade discussions.
Official statements from both governments have welcomed the “significant progress” in negotiations and reaffirmed commitment to enhancing bilateral cooperation. Indian Prime Minister Narendra Modi and US Trade Representative Katherine Tai have both emphasized the potential benefits of a mutually beneficial trade agreement that promotes job creation and citizen well-being in both countries. The roadmap for negotiations has been formalized with finalized terms of reference between the US Trade Representative and India’s Ministry of Commerce and Industry, indicating a structured approach to concluding the deal.
Details of the Proposed Trade Deal
The proposed trade deal between the United States and India is envisioned as a comprehensive bilateral agreement aimed at fostering job creation and enhancing citizen well-being in both countries. The Office of the US Vice President described the talks as an opportunity to negotiate a modern trade agreement that addresses a broad range of economic sectors. This initiative follows a February 2025 commitment between President Trump and Indian Prime Minister Narendra Modi to work on the first phase of the trade deal by autumn 2025, with ongoing discussions centered on expanding trade, investment, and technology transfers between the two nations.
The Terms of Reference announced by Vice President Vance establish a roadmap for multi-sector negotiations, focusing on increasing market access, reducing both tariff and non-tariff barriers, and securing robust commitments to ensure sustainable benefits for both parties. Recognizing existing trade barriers with India, the deal aims to address tariff restrictions, technical and regulatory barriers, and limitations in the services, industrial, and agricultural sectors. The agreement is expected to cover diverse areas such as digital trade, goods, labor mobility, and government procurement transparency.
While no final deal has been concluded yet, reciprocal tariffs imposed by the United States in early 2025 had significant effects on Indian export sectors, prompting New Delhi to consider measures to support industries adversely affected by these levies. The tariffs, initially set at 26%, were later suspended for 90 days, with a baseline tariff of 10% remaining in place during the negotiation period. These developments have underscored the urgency and importance of finalizing a mutually beneficial trade framework.
The anticipated trade agreement is projected to generate approximately one million jobs by stimulating growth in labor-intensive industries such as textiles, apparel, agriculture, leather, footwear, furniture, sports goods, jewelry, machinery, electrical goods, and railway wagons. In addition to tariff reductions, the agreement aims to facilitate freer movement of people, increased foreign direct investment, and enhanced competitiveness of Indian businesses in the global market. However, careful negotiation is required to balance trade liberalization with the protection of sensitive domestic industries.
Moreover, the trade deal is expected to incorporate provisions related to clean energy collaboration and defense technology innovation, building on existing partnerships like the US-India Strategic Clean Energy Partnership and the Defence Acceleration Ecosystem (INDUS-X). The negotiations also include discussions on government procurement practices, focusing on transparency and procedural fairness, with technical engagements planned to advance these goals.
India’s export profile, characterized by a significant services component and diversified merchandise destinations, positions it differently compared to other major trading partners like China. Indian negotiators reportedly have a degree of flexibility due to the relatively low dependence of Indian sectors on exports to the U.S., with most sectors deriving less than 10% of their revenue from the American market. This context shapes the negotiating stance and expected concessions.
Projected Economic Benefits
The anticipated trade agreement between India and the United States is expected to generate significant economic benefits for both countries. Implementation of the agreement is projected to create approximately one million jobs, primarily driven by increased business activity in labor-intensive sectors such as textiles and apparel, select agricultural and fish products, leather, footwear, furniture, sports goods, jewelry, machinery, electrical goods, and railway wagons.
India’s agricultural exports to the US, which currently constitute only 2.6% of US farm imports despite representing 10% of India’s total agro exports, indicate a considerable untapped potential for growth. Addressing barriers such as harmonization of standards and tariff reductions is critical to expanding agricultural trade between the two nations. Moreover, the lack of a comprehensive free trade agreement and disruptions in supply chains have historically constrained growth, suggesting that the new agreement could significantly enhance trade volumes and market access.
Bilateral trade between India and the US has hovered around $200 billion, underscoring the immense scope for expansion in their economic partnership. This is further supported by the signing of multiple agreements at global forums like the G20, reflecting a shared commitment to industrial growth and innovation.
Despite challenges posed by competing emerging economies offering zero-rate tariffs, and the diversified nature of India’s export destinations where the US accounts for only 18% of merchandise shipments, the agreement is expected to strengthen trade relations, especially by addressing non-tariff barriers including technical, regulatory, and market access restrictions across various sectors.
The reciprocal tariffs imposed by the US are anticipated to have a multifaceted impact on India’s economy, influencing key export sectors and associated industries. The overall effect will depend on the duration of these tariffs and the adaptive capacity of Indian industries within the evolving trade environment.
Potential Challenges and Criticisms
Trade negotiations between India and the United States face several significant challenges and criticisms that could impact the progress and outcomes of a potential deal. One major area of dispute centers around key economic sectors such as steel, aluminium, renewable energy, and solar products, which remain contentious points in the discussions. The complexity of these issues has led to uncertainty, with experts emphasizing the need for clear frameworks or “template deals” to guide negotiations and instill confidence in the marketplace.
India’s trade relationship with the U.S. has long been complicated by structural barriers, including tariffs, regulatory restrictions, and technical barriers affecting industrial, agricultural, and service sectors. Despite recent tariff reductions by India, the United States still recorded a substantial trade deficit with India, which grew by 5.1% in 2024. Tariff-related tensions intensified when India faced a 26% reciprocal tariff from the U.S. in April 2024, although this was temporarily suspended, indicating the fragility and volatility of tariff arrangements between the two countries. These tariffs are expected to have multifaceted economic effects on India, particularly in key export sectors, with the overall impact hinging on the duration of these tariffs and the adaptability of Indian industries.
Historical geopolitical and policy differences continue to influence the trade relationship. Past disagreements over military alliances, visa policies such as H-1B restrictions, and perceptions of U.S. protectionism have fostered a degree of mistrust and resistance from the Indian side, which may complicate current negotiations. Furthermore, India’s export profile differs markedly from other major Asian exporters. The Indian economy is more consumer-driven, with only 18% of its exports destined for the U.S., and a significant services component that is less vulnerable to tariffs compared to merchandise exports. This diversification provides India some leverage but also limits the urgency to make broad concessions in trade talks.
Agricultural trade presents another area of untapped potential but also significant challenges. Although India’s agricultural exports to the U.S. form a notable portion of its agro exports, they constitute only a small fraction of U.S. farm imports. This disparity points to the need for harmonizing standards and reducing tariffs to unlock growth, a process hindered by supply chain disruptions and the absence of a comprehensive free trade agreement.
Critics also point to the broader context of trade liberalization, where financial services and economic reforms are framed as sound policy choices rather than concessions in negotiations. Developing countries like India have limited incentives to pursue access to U.S. financial markets, making negotiations in this area less promising. Moreover, India’s approach to preferential trade agreements, such as the India-Mercosur PTA, suggests a preference for maintaining tariff autonomy while seeking targeted tariff reductions rather than broad, sweeping commitments characteristic of free trade agreements.
Together, these challenges highlight the intricate balance India must maintain between protecting domestic industries and pursuing deeper economic integration with the United States. The evolving nature of tariffs, regulatory barriers, and geopolitical considerations underscore the complexities faced by negotiators on both sides.
Reactions and Analysis
The response to the evolving trade negotiations between India and the United States has been cautiously optimistic from both governments and industry stakeholders. India is actively studying the impact of the 27% tariffs imposed by the U.S. on Indian imports and has expressed a strong interest in finalizing a trade deal within the year, reflecting a conciliatory and pragmatic stance despite initial setbacks under President Donald Trump’s trade policy. This cooperative tone was underscored by the joint statement from Prime Minister Narendra Modi and U.S. officials, which highlighted “significant progress” in bilateral trade agreement talks and ongoing efforts to enhance cooperation across sectors such as energy, defense, and strategic technologies.
Strategically, the bilateral relationship is advancing beyond tariffs and trade barriers to encompass broader geopolitical and economic collaboration. Key milestones cited include India’s push for greater inclusion in global governance bodies like the United Nations Security Council, improved representation in international financial institutions such as the World Bank and IMF, and admission into multilateral export control regimes including the MTCR and the Wassenaar Arrangement. India is also seeking recognition as a Trade Agreements Act-designated country by the U.S., with 2023 witnessing the initiation of discussions on transparency and fairness in bilateral government procurement.
Economic analysts emphasize that while the trade talks promise increased export and import activity that could stimulate economic growth, the negotiations must carefully balance opening markets with protecting domestic industries. Reduced trade barriers are expected to benefit specific sectors such as textiles, information technology, and pharmaceuticals, enhancing their global competitiveness. Moreover, India’s diversified export base, where the U.S. accounts for only about 18% of shipments, insulates some major Indian companies like TCS and Infosys from direct tariff impacts, with indirect effects potentially arising only if a global economic slowdown occurs.
From a policy perspective, efforts to liberalize trade in financial services are framed as part of broader economic reforms, although many developing countries show limited interest in accessing U.S. financial markets, which reduces the likelihood of trade concessions in this area. The emphasis remains on presenting trade liberalization as a sound economic strategy rather than a mere bargaining tool.
Within the U.S. administration, the Treasury Department—traditionally less involved in trade policy than the Commerce Department or the Office of the U.S. Trade Representative—has become more engaged under Secretary Scott, aligning with the populist trade agenda advanced during the Trump administration. However, the lead role in trade negotiations continues to rest with the
Implications
The potential trade deal between India and the United States carries significant implications for both economies and the broader global trade landscape. A key expectation from the U.S. Treasury is the rapid establishment of a clear and successful deal template, which is anticipated to boost confidence in the marketplace by providing a structured framework for negotiations and implementation.
For India, the announcement of reciprocal tariffs by the U.S. has introduced complexities in trade relations, particularly affecting emerging economies. These tariffs are expected to have a multifaceted impact on India’s economy, influencing key export sectors and related industries depending on the duration of the tariffs and India’s adaptive capacity to shifting trade dynamics. However, large Indian companies such as TCS and Infosys are unlikely to face direct repercussions due to the nature of their overseas client base and the predominantly service-oriented trade structure between the two countries. India’s diversified export portfolio, with only 18% of shipments destined for the U.S., further mitigates risks compared to more export-reliant Asian economies.
Economically, the U.S.-India trade relationship remains substantial, with total goods trade estimated at $129.2 billion in 2024. The U.S. ran a goods trade deficit of $45.7 billion with India, marking a 5.4% increase from the previous year. Despite this deficit, there was a notable rise in both U.S. exports to India and imports from India, signaling growing commercial engagement.
Agricultural trade presents notable untapped potential, as India’s agro exports to the U.S. represent a modest share of U.S. farm imports. Industry experts emphasize the need for harmonization of standards, tariff reductions, and resolution of supply chain disruptions, which have been hindered by the absence of a free trade agreement (FTA) between the two countries.
On the institutional front, ongoing collaboration continues in areas such as customs and trade facilitation, with both nations working together on implementing best practices and digitalizing trade measures in line with the WTO’s Trade Facilitation Agreement. However, trade tensions remain, evidenced by the existence of six trade disputes between India and the U.S. at the World Trade Organization, underscoring the challenges that still need to be addressed for a more seamless trade relationship.
Future Outlook
The future outlook for the India–United States trade negotiations appears cautiously optimistic, with expectations of a “win-win” deal materializing within the next 90 days. This sentiment was echoed by Indian trade officials who highlighted the finalization of the terms of reference for the first phase of the bilateral trade talks, signaling a vital step toward fulfilling the vision set by both countries’ leadership. The successful conclusion of such a deal is anticipated to boost bilateral trade and investment, deepen cooperation on global security, and enhance India’s participation in global governance bodies like the United Nations Security Council and economic forums such as the World Bank and IMF.
Market analysts stress the importance of the U.S. Treasury Secretary demonstrating a clear, actionable framework for the agreement to instill confidence in stakeholders and accelerate negotiations. Despite challenges—such as India’s cautious approach to tariff concessions and its relatively low export dependence compared to other Asian economies—India’s large consumer-driven economy provides it with a stronger bargaining position. Exports constitute about one-fifth of India’s economy, allowing flexibility in trade discussions while prioritizing domestic manufacturing and economic diversification.
Additionally, the ongoing commitment of both nations to fostering industrial growth and innovation is underscored by the signing of multiple agreements in global forums like the G20, further indicating a strategic partnership poised for expansion. The joint statements and ministerial meetings, including the 13th Ministerial-level meeting of the U.S.-India Trade Policy Forum, reflect an open and collaborative dialogue aimed at deepening and diversifying trade ties.
While uncertainties remain given the unprecedented nature of such a comprehensive trade agreement and the evolving geopolitical landscape, the framework laid down by current negotiations and mutual interests suggests a promising trajectory for India to assume a leading role in establishing a substantive bilateral trade pact with the United States.
The content is provided by Jordan Fields, Fact-Nest
