US-India Trade Deal: Phased Partnership May Lift Dark Clouds
PM Narendra Modi with US President Donald Trump. Image credit White House
US-India Trade Deal: A Balancing Act Between Strategic Partnership and Domestic Priorities
By P. Sesh Kumar
NEW DELHI, July 1, 2025 – As the July 9 deadline for a possible interim trade deal between the United States and India approaches, negotiations are intensifying but remain fraught with complexity. While the optics suggest a breakthrough is within reach, core issues—particularly agriculture and dairy—have created a deadlock that reflects both countries’ deeper strategic and economic priorities.
The US-India trade relationship has evolved significantly since the launch of the “Next Steps in Strategic Partnership” (NSSP) in 2004. Today, bilateral trade stands at $131.84 billion, with India enjoying a consistent trade surplus. The ongoing talks aim to finalize a Bilateral Trade Agreement (BTA), beginning with an interim deal expected to focus on tariff reductions and enhanced market access.
Yet despite the momentum, key sticking points have prevented closure. Agriculture and dairy, sectors critical to India’s rural economy, remain non-negotiable. India imposes high tariffs—ranging from 30% to 60%—on dairy imports and has consistently refused to open this sector in any free trade agreement. These protections stem from deep-rooted concerns over food security and the livelihoods of millions of small farmers. As Finance Minister Nirmala Sitharaman recently reaffirmed, these are “very big red lines.”
US Pressure Meets Indian Red Lines
For the United States, gaining access to India’s agricultural and dairy markets is seen as essential to correcting the trade imbalance. Washington has also pushed for greater concessions on ethanol, genetically modified crops, and other goods, as well as in sectors like electric vehicles, alcoholic beverages, pharmaceuticals, and medical devices.
Tariffs add another layer of urgency. In April 2025, the US imposed a 26% reciprocal tariff on Indian products but suspended it for 90 days. That suspension is set to expire on July 9. Without an interim deal, Indian exports could face significant setbacks, pressuring New Delhi to negotiate limited concessions.
India, meanwhile, is seeking US tariff relief for labour-intensive sectors like textiles, gems, jewellery, and leather goods—key industries for employment and export growth.
The Stalemate: Politics Meets Policy
Despite marathon discussions in Washington, led by Special Secretary Rajesh Agrawal, agriculture and dairy remain the deal’s most sensitive points. India’s position is shaped not only by economic realities but by political imperatives—any perceived compromise on rural livelihoods could cost the government electorally.
The US, however, insists on reciprocity and has raised concerns over India’s import procedures, intellectual property regime, and digital trade policies, claiming they disadvantage American businesses. These differences reflect a deeper clash between strategic cooperation and domestic constraints.
The Path Forward: Phased Compromise
Despite the impasse, both sides recognize the strategic value of their partnership, particularly in the Indo-Pacific context. A likely way forward is a phased approach: a limited interim agreement before July 9 addressing less contentious issues—such as digital trade, customs, and technical standards—while deferring agriculture and dairy to a broader BTA expected by October 2025.
India could offer narrow concessions—like lower tariffs on specialty dairy products or increased quotas for select US exports—in exchange for US tariff reductions and streamlined import procedures. Collaborative projects, such as joint research in agri-tech or training programs for Indian farmers, could transform friction points into platforms for cooperation.
In essence, the US-India trade deal, if it materializes, will be more of a carefully calibrated balancing act than a sweeping breakthrough. Its success will depend not just on what is agreed in July, but on how both nations navigate their red lines in the months ahead—where strategic alignment must coexist with domestic imperatives.
(This is an opinion piece. Views expressed are solely those of the author.)
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