A postscript – and a prelude – on US-India trade

In October 2024, I wrote a piece with Anushka Shah for the Hinrich Foundation laying out prospects for US-India trade that might apply regardless of the outcomes of the US presidential election in November. It noted that ambitions in bilateral trade negotiations have been too low for too long, and the time had come for much broader and deeper trade ties.

After the Trump victory in November, former US ambassador to India Ken Juster and I elaborated on ideas for bilateral trade negotiations in Foreign Policy. We highlighted that the time had come to go big, perhaps drawing inspiration from the US-Japan Trade Agreement concluded in the first Trump administration.

This is a significant and positive development, ensuring that India is first in line for negotiations in a new era of Trump trade agreements. However, negotiations on trade are likely to be difficult and could prick political sensitivities on both sides. As such, success is not a sure thing, and both leaders will have to be directly involved to ensure that the negotiations stay on track and that prospective outcomes will meet their individual expectations, which was not the case back in 2019 when negotiations collapsed.

The negotiations should start to pick up speed soon, especially with the new US Trade Representative (USTR), Jamieson Greer, in place and as the outlines for a first tranche start to emerge. In these early days, it will be critical that the two sides align their expectations for the first tranche without delay and they start to lay out a broader vision of what follows, presumably in 2026 and perhaps beyond, in a comprehensive BTA.

Success could turn on answers to three key questions:

• Will a first tranche cover the main areas of a BTA, including tariffs, non-tariff barriers, services, and rules areas, such as intellectual property rights?
• Will a BTA be a de facto free trade agreement (FTA), providing for preferential tariffs between the two and excluding others, particularly China, from benefiting?
• As negotiations are ongoing, will President Trump refrain from imposing new tariffs against India, and will US negotiators have any authority to selectively lower US tariffs, which will require Congress to pass new trade legislation?

There should be no doubt about the importance of success. This is no time for heads in the sand and wishful thinking. For the United States, the prospect of tariffs against India could interrupt the upward trajectory of a strategic partnership that is critical to US interests in the Indo-Pacific region. For India, the economic stakes are much higher than its ongoing negotiations with the European Union (EU) and the United Kingdom (UK). If any country would prefer to see these negotiations fail, it would most likely be China.

Is the first tranche an appetizer or a main course?

Six to nine months to conclude a first tranche trade deal is a very short period, even bordering on wildly unrealistic, depending on level of ambition. That said, the mandate to negotiators comes directly from Trump and Modi. The ministerial negotiators, Greer and Minister of Commerce Piyush Goyal, already have the experience of efforts in the first Trump term to conclude a limited trade agreement related to India’s tariff benefits under the Generalized System of Preferences (GSP) program.

Beyond tariffs, there is a wide variety of non-tariff barriers (NTBs) that could be addressed and some of these might provide benefits to India in contrast to a focus exclusively on tariff benefits for US exporters. While tariffs and NTBs can have similar impacts in restricting trade, they can be fundamentally different in important respects. Tariffs are generally motivated to protect domestic producers (and, to a lesser extent, raise revenues). NTBs, on the other hand, more often are in place to serve "legitimate" non-trade policy objectives such as the protection of human lives and health. Examples are phytosanitary checks on agricultural imports or safety standards labeling. However, NTBs can veer into trade protectionism when they are intentionally applied by a government to hinder imports for reasons other than relevant legitimate regulatory objectives.

A high priority for US negotiators is likely to be India’s growing trend of using “quality control orders,” or QCOs, that employ India-unique industrial standards instead of international standards and require testing in Indian facilities, which can diverge from international best practices. As such, some QCOs have been highlighted in the WTO Technical Barriers to Trade (TBT) Committee as problematic by several WTO members, including the United States. A starting point for bilateral negotiations in this area could involve QCOs in the chemicals and medical device sectors.

The agricultural sector may also offer early opportunities for the two sides to engage in some transactional negotiations to resolve longstanding issues related to sanitary and phytosanitary (SPS) requirements. In fact, there are already priorities on both sides that are teed up for early agreement. US exports of feed grains, which benefit the Indian poultry industry, and Indian exports of grapes are good candidates.

What can the US offer besides averting new tariffs?

Beyond a first tranche, the negotiation of this BTA will be unprecedented in many ways. In fact, the title itself leaves a lot to the imagination, which may provide some impetus for creativity, always a precious commodity in trade negotiations. Despite what I have heard from some commentators, the term BTA is somewhat unique. It is not a free trade agreement (FTA), and previous bilateral efforts to negotiate have never involved an FTA, at least in the classic WTO definition involving eliminating tariffs on "substantially all trade," and in the US Congressional definition, which requires legislation providing trade negotiating authority.

Leverage is the key ingredient in any trade negotiation, and the Trump administration has it in spades with its threats of radically higher tariffs. Empty or overly provocative threats, particularly between major economic powers, can backfire, but for the moment it is best to assume that each side is highly motivated to conclude a substantial, wide-ranging trade agreement. While the Trump administration may have an ambitious agenda to address its concerns with India’s trade-restrictive measures, India should have its agenda for US commitments as well. A BTA must be a win-win.

Aside from market access in the form of tariff concessions, a BTA can include specific chapters that are common to many past US FTAs, including TBT, SPS, trade capacity building, and so on. Agreement on these areas and others could address some of the NTBs that India may request in specific sectors. A BTA could also offer enhanced commitments on services beyond those in existing WTO agreements. It could include completely new areas of trade, such as provisions on high-tech matters, supply chain resilience, health sector collaboration, etc., as Ken Juster and I laid out.

Unfortunately, this delegation of tariff-cutting authority to the USTR expired at the end of 2021. Additionally, "trade promotion authority" to negotiate FTAs expired at the same time. India appears to have continuing interest in the reinstatement of its GSP beneficiary status, which offers lower tariff rates, but that program expired in 2020 and, along with it, the possibility of renewing India’s status.

The bottom line seems to be that no tariff cuts can be provided to India in the absence of Congressional legislation to renew these authorities. Ideally, some leaders in the Congress and the administration are anticipating these negotiating dynamics and will press for a trade legislation package in coming months. Otherwise, the toolbox for negotiating new trade deals will be limited to sticks with few carrots to help.

So, we now have circumstances that offer the best opportunity to negotiate a bone fide US-India trade agreement since the United States and India began to remold their larger strategic relationship in the early 2000s. But the risks are rife that broader US plans on tariffs and consequent global trade and diplomatic tensions reduce the odds for such a success. As longstanding and important alliances continue to fracture on a daily basis in the early days of this administration, there will be much at stake in getting a US-India trade agreement right.

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