The recent talks between U.S. President Donald Trump and Indian Prime Minister Narendra Modi have set the stage for potentially transformative shifts in trade relations between the two countries. As both leaders addressed the media, several key points emerged that could redefine economic exchanges. Trump's approach to trade with India hints at a broader strategy, incorporating elements beyond traditional import duties, such as value added tax (VAT), non-tariff barriers, and trade restrictions. In a rare occurrence, this event marked only Modi's third direct press Q&A during his nearly 11-year tenure as India's prime minister.
Among the significant announcements was India's willingness to repatriate verified illegal Indian migrants from the U.S., a development noted by Trump during the talks. Furthermore, Trump expressed optimism about the U.S. becoming India's leading supplier of oil and gas. This ambition aligns with a shift in India's procurement landscape, where Russia, previously the top supplier, has seen its share diminish from 62% to 34%.
"For instance, the US sanctions on Russian shadow fleet are soon going to kick in, so India can easily pivot to the US for more oil. This will not be too difficult." – Priyanka Kishore
Despite these promising avenues, Trump's mention of India's high tariffs on select items sparked discussion. Ajay Srivastava, founder of the Global Trade Research Institute (GTRI), remarked that such tariffs are not the norm, and India need not fear reciprocal actions.
"Trump points to extreme outlier tariffs like 150% on select items, but that's not the norm. India has little reason to fear reciprocal tariffs," – Ajay Srivastava
From an economic standpoint, a notable 75% of U.S. exports to India face import taxes of less than 5%, indicating that tariffs alone may not suffice to bridge the trade deficit. Ajai Shukla, a strategic affairs expert, highlighted India's hesitation regarding the F-35 offer due to high maintenance demands.
"Overall, both sides seem comfortable continuing Biden-era collaborations, particularly in tech and defence, though many will be rebranded under Trump." – Michael Kugelman
The prospect of a new trade deal opens opportunities for renegotiating tariffs on both sides, which could significantly benefit the U.S.-India relationship and invigorate India's recent economic slowdown.
"The announcement that the two sides will pursue a trade deal gives India an opportunity to negotiate for reduced tariffs on both sides. That would be a boon not only for the US-India relationship, but also for an Indian economy that's sputtered in recent months," – Michael Kugelman
However, skepticism remains regarding the potential benefits of such a deal. Abhijit Das, former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, cautions about the implications of reciprocal tariffs.
"The devil lies in the details. Reciprocal tariffs won't just mirror India's import taxes – other factors will come into play," – Abhijit Das
Moreover, the U.S. is expected to push for access to India's government procurement market, which currently enjoys protection under WTO rules. This move could challenge India's "Make in India" initiative by prioritizing domestic producers.
"This will hamper India's ability to prioritise domestic producers, posing a direct challenge to the 'Make in India' initiative. This is certainly not good news for us." – Abhijit Das
In parallel, India's efforts to attract Tesla by reducing electric vehicle (EV) import taxes for automakers committing $500 million and local production within three years underscore its strategic economic objectives.
"Is it a full blown free trade agreement or is it a reciprocal tariff deal?" – Ajay Srivastava
While India's trade surplus with its top trading partner, the U.S., remains robust, questions linger about how these new negotiations will unfold. Michael Kugelman noted the ambitious nature of this agenda given the administration's short tenure.
"That's a lot of deliverables for an administration less than a month old," – Michael Kugelman
"This sounds good, but it may be a case of putting the cart before the horse," – Mr. Kugelman