Context: India and the US have agreed to negotiate the first tranche of a Bilateral Trade Agreement (BTA) in 2025 to reduce tariff and non-tariff barriers. However, the US policy on reciprocal tariffs, as proposed by President Donald Trump, could impact negotiations significantly.
Relevance of the Topic:Prelims: Key aspects of the US-India Relations- Bilateral Trade Agreement
India-US Trade Relations: Current Scenario:
- US was India’s second-largest trading partner during April-November 2024-25, with bilateral trade reaching $82.52 billion.
- India’s goods trade surplus with the US doubled from $17.30 billion in 2019-20 to $35.33 billion in 2023-24.
- India enjoys a merchandise trade surplus of $35 billion with the US.
- Major Indian imports from the US: Mineral fuels, precious stones, nuclear reactors, electrical machinery, and aircraft parts.
- Major Indian exports to the US: Engineering goods, electronic goods, gems and jewellery, pharmaceuticals, and petroleum products.
- Both Nations aim to double their bilateral trade to $500 billion by 2030.
Reciprocal Tariffs: Implications for India:
- Trump’s reciprocal tariff plan aims to match higher tariffs imposed by trade partners on US goods.
- US claims India imposes high tariffs, particularly on agricultural goods (39%) and motorcycles (100%), compared to US tariffs of 5% and 2.4%, respectively.
- The policy could push India to reduce its tariffs rather than the US offering reciprocal concessions.
- The US withdrawal of India’s Generalised System of Preferences (GSP) status in 2019 has already affected India’s duty-free exports worth over $5 billion.
Bilateral Trade Agreement (BTA):
- What is it: An integrated approach to strengthen and deepen bilateral trade across the goods and services sector.
- Objectives:
- Increasing market access
- Reducing tariff and non-tariff barriers
- Deepening supply chain integration.
Concerns in Bilateral Trade Agreement (BTA) Negotiations
- Narrow scope: BTA is narrower in scope than a Free Trade Agreement (FTA), focusing only on specific sectors rather than overall trade liberalisation.
- US demands: US may demand stricter standards and non-tariff measures to gain further concessions from India.
- Potentially benefit US more: BTA likely means lower Indian tariffs on American goods, since average US tariffs are already among the lowest in the world.
- Less favourable stand: India’s higher average tariff rates compared to competing nations reduce its ability to negotiate favorable trade terms.
- Past experiences: Indo-Pacific Economic Framework for Prosperity (IPEF), which India is a part of, did not conclude its ‘trade pillar’ due to the lack of US tariff concessions.