India US trade pact nears completion amid tariff hurdles, promises new economic cooperation

India and the United States are making significant progress towards finalizing a new bilateral trade agreement after several rounds of dialogue. Both countries have announced a rapprochement on key issues, with officials confirming that the legal framework is now under review. However, uncertainty over higher US tariffs on Indian goods remains a challenge for discussions.

With India’s exports to the US declining amid rising tariffs, the outcome of these negotiations is important for both countries. The discussions, described as innovative and not reflective of traditional free trade agreements, aim to address outstanding issues and clarify the future of economic cooperation between India and the United States.

Indian exports to the United States have faced pressure due to recent tariff decisions taken by Washington. In August, the United States imposed 50% tariffs on Indian goods, half of which were imposed as punitive measures linked to India’s energy imports from Russia. This led to a 12% year-on-year decline in Indian goods exports to the US in September, despite an overall rise in India’s total exports. The persistence of these tariffs remains a major obstacle, prompting both sides to search for solutions that can mitigate the negative impacts on exporters and maintain the momentum of bilateral trade.

One of the officials participating in the talks said: “The talks are progressing well… We are negotiating very positively, and we are finding common ground on the outstanding issues,” which confirms the optimism at the current stage. According to the same official, “We are very close regarding the deal. We are converging on most issues… So far, there are no major gaps,” noting that most of the complex matters have been addressed, and only minor points remain.

The structure of the proposed agreement differs from standard forms. The official explained that the trade agreement “is not a traditional free trade agreement negotiation,” signaling a move away from reciprocal tariff arrangements typically governed by World Trade Organization standards. This tailored approach reflects the unique priorities of both economies, aiming to provide targeted relief and open new channels of cooperation as the two parties navigate complex global trade dynamics.

High-level political engagement was accompanied by technical discussions. US president Donald Trump stated, “I just spoke with Modi today about trade. We’re working on a great deal with India,” referring to his recent phone conversation with Indian Prime Minister Narendra Modi. He also commented that New Delhi “won’t buy much oil from Russia.” This highlights the geopolitical context of the negotiations and broader strategic interests, particularly in relation to energy trade and related sanctions.

The ongoing negotiations are characterized by a focus on resolving practical trade barriers and legal complexities rather than simply reducing customs tariffs. While the precise legal language is being finalized, officials on both sides stressed that the dialogue is constructive. The innovative nature of the agreement is expected to set a new standard for future bilateral trade arrangements, as both countries work to ensure that the final agreement addresses the most pressing concerns of exporters and policymakers.

Despite the progress, the issue of 50% tariffs continues to overshadow the talks. These duties, half of which are punitive in nature due to India’s purchase of Russian energy, have created uncertainty for Indian exporters. The year-over-year decline in merchandise exports to the United States highlights the immediate economic risks associated with the successful resolution of this aspect of the negotiations.

While the final legal texts are being reviewed and negotiators work to fill remaining gaps, attention remains on whether the agreement will address the pressing issue of tariffs. The successful conclusion of the agreement is expected to impact not only bilateral trade but also the broader trajectory of economic and strategic relations between India and the United States.