India Needs a Bold Trade Narrative to Counter US Tariff Politics

Trump’s Tariff Gambit and India’s Trade Tightrope-Cutting Through the Rhetoric

By P SESH KUMAR

NEW DELHI, July 31, 2025 — Almost all major TV news channels and print media are agog with the apparent bitterness that appears to have crept into India- US trade negotiations not making headway. In a dramatic throwback to his first term protectionist playbook, Donald Trump (the way only he could have proudly professed) reignited trade tensions with India by announcing a surprise 25% tariff on Indian goods, coupled with an unspecified “penalty” over New Delhi’s past defence and energy dealings with Russia.

The timing and tenor of this move have sent ripples through diplomatic and economic circles, exposing not only the persistent fragilities in India-US trade ties but also the complexities of balancing geopolitical compulsions with economic strategy.

At the heart of the issue lies a familiar complaint from Trump: that the trade relationship is unfairly tilted in India’s favour. This argument, often made in populist tones and divorced from full-spectrum trade data, fails to grasp the nuance of modern international commerce.

It paints India as a predatory exporter reaping a one-sided surplus, while conveniently ignoring the substantial services trade, investment incomes, education, financial services, royalties and arms trade besides commercial consultancy fees flowing from India to the US that are not captured in conventional goods trade figures.

When Trump thunders about the $41 billion (or is it $ 44.4 billion?) goods trade surplus in India’s favour, he omits the broader context in which US corporations extract immense value from India through software services, technology outsourcing, R&D centres, and consultancy operations—all of which go under the radar in the public discourse.

To unpack this further, let us consider the most recent data for FY25. India is supposed to have exported a whopping $87 billion worth of goods to the US, while importing $46 billion, resulting in a visible surplus of $41 billion. This figure makes India’s surplus look significant, but only if one disregards the concurrent $36.4 billion in services exports from India to the US in 2023 alone, against imports of $34 billion. In services too, India enjoyed a modest but notable $2.4 billion surplus.

The real story, however, lies in the indirect and often untallied benefits that US firms are understood to be reaping from their operations in India. From royalties, education, the code written by engineers in Bengaluru to the legal work done by LPOs in Gurugram and back-office support in Pune, American firms effectively access world-class services at competitive prices, giving them a sharp edge in global markets.

Then, there is arms trade. These earnings, our experts say, do not show up on Trump’s tariff radar but are deeply embedded in corporate balance sheets across Silicon Valley and Wall Street. And Trump discounts India’s recent accommodation of imports of Harley Davidson motor cycles and Bourbon whiskey.

Many impartial observers say that Trump’s outrage is not entirely without hooks. The Indian side has its share of defensiveness. India does levy steep tariffs on key US exports, particularly in sectors Trump considers strategic and voter-sensitive—dairy (30–60%), farm products (30–50%), automobiles and electric vehicles (70–100%), and wines (100–150%).

While these barriers exist for valid domestic reasons—food security, farmer livelihood protection, infant industry shielding, and social sensitivities—Washington sees them as unfair impediments to market access. Add to this India’s unwillingness to fully open up its dairy and agriculture sectors—fearing floods of hormone-treated US produce—and one can understand the policy clash. The repeated failure to close a comprehensive trade deal over the past six years speaks to this unresolved tension.

From a policy standpoint, India knows it must tread this terrain with both firmness and finesse. It cannot afford to blink on its core economic and national interests. Giving in on dairy would hit millions of small farmers. Slashing EV import duties would cripple nascent domestic manufacturing. Easing wine tariffs would benefit a niche elite while undermining the emerging Indian viticulture sector. On the other hand, rigid postures could provoke retaliatory US actions that hurt job-creating exports in textiles, leather, jewellery, and pharma—sectors that collectively account for over 35% of India’s $87 billion goods exports to the US.

On the other hand, India has had relative success in sealing bilateral trade agreements with countries like the United Kingdom, Australia, the UAE, and several others. This contrasts glaringly- especially with continued difficulty in clinching a comprehensive trade deal with the United States. It stems from a volatile mix of political asymmetry, strategic divergences, sectoral red lines, and divergent domestic compulsions.

While these other agreements have been marked by diplomatic give-and-take and a degree of political goodwill, the US–India trade relationship has historically been a minefield of clashing expectations and unresolved irritants. Let us see how and why that difference persists.

To begin with, the United States is not like the UK or Australia when it comes to trade negotiation. It does not approach Free Trade Agreements (FTAs) from a purely commercial lens.

For Washington, FTAs are deeply political instruments, often tied to broader strategic objectives, human rights concerns, environmental conditionalities, intellectual property standards, and digital trade norms that reflect American corporate and ideological interests. With India, these layers become especially tangled.

For instance, in the India–UK FTA, the sticking points like whisky tariffs, automobiles, and mobility of professionals were contentious but negotiable. Both sides were dealing with post-Brexit compulsions and had clear economic incentives to sign a deal quickly. The same goes for Australia and the UAE—where the bilateral dynamics were relatively straightforward, and neither side expected the other to transform its domestic market architecture as a precondition for trade.

But with the US, things get significantly more loaded.

First, there is the structural imbalance in negotiating leverage. The US is the world’s largest economy and often expects partner countries to align with its regulatory frameworks—from digital data flows and e-commerce rules to pharmaceutical patents and climate provisions.

India, with its large consumer base and growing geopolitical heft, resists this imposition of standards that could hurt its fledgling domestic industries or compromise sovereign policy space. As a result, even limited trade deals with the US get weighed down by disproportionate demands on structural reforms—opening dairy, dismantling farm subsidies, slashing import duties on Harley-Davidsons or EVs, or Bourbon whiskey or adopting US-style IP rules that would affect India’s generic pharma industry.

Second, domestic politics plays a far more dominant role in US trade decisions than in most other countries. For example, powerful US lobbies—such as those representing dairy, agriculture, digital companies, and Big Pharma—have long influenced Washington’s stance on India. These lobbies have often accused India of being a “tariff king,” a phrase Trump famously used, and of running non-transparent procurement and standards regimes. The result? US Trade Representatives (USTR), regardless of political party, approach trade talks with India with a punitive and extractive mindset, unlike the more accommodative tone taken with allies like the UK or Australia.

Third, India’s strategic ambiguity on China, Russia, and digital sovereignty adds to the friction. Washington wants India to align more fully with its global tech and security standards—whether it’s about 5G networks, data localization rules, or defence procurement or more contentious crude oil purchases from Russia. India’s refusal to be shoehorned into such alliances often frustrates the American strategic establishment, and these disagreements spill into trade negotiations, even if they are not explicitly linked.

Fourth, the US system demands Congressional involvement and ratification for formal FTAs, unlike India’s other recent deals which were finalized without parliamentary obstruction. This makes the bar higher.

Any meaningful agreement with India has to run the gauntlet of multiple American stakeholders—Senate committees, domestic industry groups, labour unions, digital platforms, IP hawks—each of whom wants something different from India. No such multiplicity exists in the UK’s or UAE’s legislative process.

Moreover, India’s protectionist instincts—especially under the Atmanirbhar Bharat narrative—remain a challenge. While India is selectively liberalizing, it still maintains high import duties on sectors such as automobiles, dairy, wines, farm goods, and EVs to shield domestic producers and avoid flooding of the market. These are precisely the sectors that American negotiators want access to. Unlike the UK or Australia, the US is not willing to settle for a partial deal that ignores these segments.

Digital trade has emerged as a particularly thorny issue. The US insists on free cross-border data flows and a ban on data localization, while India wants sensitive personal and financial data of its citizens to reside within the country. With global Big Tech companies headquartered in the US, this clash has grown sharper, and there’s no easy middle ground.

Lastly, the Trump factor adds a wildcard dimension. His transactional, tariff-first approach treats allies and adversaries with the same confrontational lens. Biden’s tenure brought a more conciliatory tone but didn’t revive GSP or bridge key gaps. With Trump back in office in 2025, the negotiation climate has grown even more unpredictable. During his earlier term, India lost its GSP (Generalized System of Preferences) benefits, faced repeated tariff threats, and saw trade talks derail multiple times over issues like dairy access, digital regulations, and medical device price controls.

Now, with his administration again at the helm, India is bracing for a more hardline posture, where trade is wielded less as a tool for mutual prosperity and more as leverage in broader geopolitical bargaining.

In sum, one cannot say that India can conclude win-win trade deals with partners that are commercially minded, politically aligned, and willing to respect India’s domestic sensitivities. But the US demands far more than trade—it demands alignment. And India, fiercely protective of its economic sovereignty and domestic interest groups, remains unwilling to make those concessions.

So, is there a practical way forward at all? Nothing is impossible in diplomatic engagement between countries—if there is give and take. Pragmatists (the few as they are) suggest something as follows.

First, India must mount a robust narrative counter-offensive. This means aggressively showcasing the broader balance of trade—including services, technology transfers, and investment flows. The pitch must highlight how US firms benefit immensely from India’s digital workforce, how Apple and Google increasingly rely on Indian engineers, and how US consultancies are minting millions from India-based operations.

A White Paper on US gains from India, cutting across goods, services, and intellectual capital, could help soften Washington’s narrative and educate both Capitol Hill and Middle America.

Second, India should propose a calibrated framework for tariff rationalization—not blanket slashing, but strategic trimming in select sectors where it can absorb the shock. For instance, reducing wine duties in exchange for better access to US agri-tech or pharma markets could be a sensible quid pro quo. A dynamic tariff window could be negotiated with safeguards to ensure fair competition and non-disruptive transitions for Indian producers.

Third, both sides must look beyond trade in isolation and fold these discussions into a broader strategic economic dialogue. From defence collaborations and critical mineral supply chains to semiconductor alliances and climate-tech partnerships, India and the US have converging interests. Trade friction should not hijack the larger trajectory.

Finally, India must proactively build alternative markets to reduce over-dependence on the US. While America remains India’s number one export destination across nine product categories—ranging from engineering and electronics to gems, jewellery, and pharma—it is equally vital to deepen linkages with the EU, ASEAN, Africa, and Latin America. The $500 billion bilateral trade ambition with the US by 2030 must be pursued not from a position of desperation, but from one of diversified strength.

The path forward lies not in signing a grand FTA for the sake of optics but in pursuing incremental, sectoral agreements—on services, digital cooperation, pharma regulation harmonization, and trade facilitation. Plurilateral trade mini-pacts, mutual recognition agreements, and tariff-rate quotas in sensitive goods could ease pressure.

If both sides stop treating the trade deal as a litmus test of strategic partnership and instead see it as one layer among many in a complex relationship, the deadlock might begin to ease.

Trump’s bluster may generate headlines, but India’s response must be grounded (so far, it has shown firmness that Trump is not accustomed to seeing), strategic, and long-term.

The trade relationship is complex—not a zero-sum game but a lattice of mutual dependencies. India must not flinch, nor falter. It must engage with confidence, armed with data, diplomacy, and developmental clarity.

Until then, our trade experts may say that India’s best trade outcomes may continue to emerge not from Washington but from London, Abu Dhabi, Canberra—and increasingly, Southeast Asia and Africa.

(This is an opinion piece, and views expressed are those of the author only)

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