The long arc of an India-US trade deal could end in a win-win

Talks with China, perhaps the trickiest, are ongoing; A 90-day extension of the tariff and export control détente struck in mid-May seems likely—a negotiating team led by US Treasury chief  Scott Bessent and top Chinese economic officials held talks in Stockholm on 28 July for more than five hours, and again on July 29 to resolve long-standing economic disputes and reach a tariff agreement. 

In contrast, US negotiations with India, even after numerous rounds of talks conducted in Washington and New Delhi, appear to have lagged. 

It’s clear that US President Donald Trump is not settling for win-win deals, and that may be what’s slowing progress with India. The White House is handing out lopsided deals: US trade partners must accept its one-sided terms or have the sweeping ‘Liberation Day’ tariffs that Trump announced on 2 April imposed on their exports. 

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Countries whose economies are heavily dependent on exports can’t really hold out and are consenting to drop their tariffs on US exports—to zero in many cases. Vietnam, for example, got a pretty raw deal. While tariffs on Vietnamese exports have reduced from 46% to 20%, America has got duty-free access to Vietnam’s market. Worse, Vietnam’s exports of transhipped goods will still face a 40% US import duty.

The centrepiece of these accords are US base rates. These across-the-board American import tariff rates are much higher than the average of 3% that prevailed before 2 April and also the concessional rates that the White House wants for US exports, which makes these deals one-sided. 

The base rate is 10% for British exports, 20% for Vietnamese exports, 19% for Indonesian exports, 15% for Japanese exports and 15% for EU exports. The White House may insist on a high base rate for Indian exports.

The EU had pitched a zero-for-zero tariff deal at the start of its talks with Washington and had readied an armoury of retaliatory counter -measures to be imposed on the US in a bid to strengthen its negotiating position. But Trump proved a tough negotiator—the EU has agreed to a base rate that is even higher than that on British exports. 

The alternative was a trade war, European trade commissioner Maroš Šefčovič told news reporters, underlining just how close Trump came to walking out of the negotiations that were conducted in the ballroom of his Scottish golf resort.

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New Delhi will find it politically impossible to sell a similarly lopsided deal at home. Indian negotiators would need substantial concessions from the White House in return for lowering our steep tariffs in sectors like agriculture, steel, aluminium and automobiles. Ideally, India would like zero-for-zero tariffs for a wide range of sectors, including leather products and textiles and apparel, and would like to see a deal that makes our exports more competitive, such as our basmati rice vis-a-vis competitors like Pakistan. 

But on 7 July, Trump unilaterally reduced the US reciprocal tariff for some of our trade rivals like Bangladesh and Cambodia, thus upsetting our potential tariff-differential advantage. His persistent threats of a 50% levy on copper, a staggering duty of 200% on pharmaceutical products and an additional 10% tariff on imports from Brics countries has further complicated the negotiations. 

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New Delhi has tread cautiously so far, not giving in to any wild demands, and has not let talks break down. Finance minister Nirmala Sitharaman lowered tariffs on whisky and pharmaceuticals pre-emptively and unconditionally ahead of Trump’s 2 April tariff announcements. 

Perhaps in recognition of this careful approach, Trump desisted from sending India a tariff letter earlier this month at the end of his 90-day reprieve for concluding bilateral deals. On Wednesday, though, he  threatened to impose a tariff of 25% plus a “penalty” from 1 August on our exports, presumably to hasten negotiations. 

But it would not be unrealistic to expect him to agree to another extension. Trump is famous for changing his decisions quickly.  Extended negotiations could be used for demanding concessions that will make an India-US pact less one-sided. Trump may come around if US companies with significant leverage in Washington lobby for those concessions to be granted. 

Like the UK, we could ask for conditional relief on steel and aluminium. We could similarly seek a tariff rate quota for automobiles. India could go beyond tariffs and secure concessions in services too, such as a higher and assured number of H-1B visas that an Amazon would like as much as a TCS. 

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Digital trade, like in the US-Indonesia agreement, can be part of our deal, suitably adapted for Indian companies. Trading paperless could be a way to blunt the blow of a base rate. If authorities start accepting electronic documents and online filings, the savings that may accrue to Indian exporters—as estimated by the UNESCAP-ADB—would substantially offset the impact of tariff hikes. Without these, India may not be in a position to sell the deal domestically—commerce minister Piyush Goyal indicated as much when he said that India is aiming for a win-win deal. 

The authors are, respectively, consulting editor, Mint, and senior fellow (consultant), Indian Council for Research on International Economic Relations (Icrier); and professor, Icrier.