Deal of unequals | India’s pain, Trump’s gain

Trump reserves the right to reimpose penalties if India imports Russian oil, keeping pressure on New Delhi.

India has been trying to secure a trade deal with the United States ever since US President Donald Trump returned to the White House in January 2025.

India sought to win Trump’s favour by reducing tariffs in Budget 2025-2026 on bourbon whiskey, motorcycles, ICT products, and medical devices, among others. Prime Minister Narendra Modi, on the first available opportunity, visited the US in February 2025 and gladly signed the United States-India Joint Leaders Statement, which committed both parties to negotiate the first tranche of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by the fall of 2025.

A mercurial Trump struck soon after. He threatened India with 26 per cent ‘reciprocal tariffs’ (a weapon of mass destruction of others’ trade surplus with the US, like India) in April 2025 and then actually imposed 25 per cent reciprocal tariffs in July. He did not stop at that. Additional 25 per cent penalty/ ‘reciprocal tariff’ was slapped on August 6 to punish India for daring to import Russian crude oil.

This created a desperate situation for Modi and India’s negotiators. They unsuccessfully tried to present a brave face, publicly vowing to protect politically-sensitive Indian producers (farmers) and exporters of agricultural and labour-intensive products (MSMEs).

Trump gave India a long rope, and finally announced the US-India trade deal on February 2 on his social media account. The White House released the United States-India Joint Statement on February 6, detailing a framework for an interim agreement regarding reciprocal and mutually beneficial trade.

Is this a good deal for India? Does it protect India’s interests in agricultural and labour-intensive products?

It is Trump’s deal

Recalling that Modi called him, Trump, in his post, claimed that Modi had ‘agreed to stop buying Russian oil’. He also announced that he and Modi agreed that ‘the United States will charge a reduced Reciprocal Tariff, lowering it from 25 per cent to 18 per cent’.

Trump also claimed that India would ‘move forward to reduce their Tariffs and Non-Tariff Barriers’ to ‘Zero’ and that Modi committed to buy US goods ‘of much higher level’, in addition to over 500 billion dollars of ‘US Energy, Technology, Agricultural, Coal, and many other products’.

As India committed to stop buying Russian oil, 25 per cent additional tariff was announced to be removed.

What is India’s gain in the deal?

Nothing, except a 7 per cent reduction in ‘reciprocal tariffs’ on about 50 per cent of India’s exports.

There was an understandable outcry in India. The interim agreement makes only token concessions, camouflaging some too obvious pain-points.

No protection for farmers

India has agreed to ‘eliminate or reduce tariffs on all US industrial goods and a wide range of US food and agricultural products’, including ‘dried distillers’ grains’, red sorghum for animal feed, fresh and processed fruit, soybean oil, wine and spirits, additional products’.

There is no specific exclusion of GM soybean oil, corn, dairy or poultry products. The expression ‘additional products’ most likely covers these products.

There is more foreboding stuff hidden inside the interim agreement.

It specifically records that India agreed to ‘address long-standing non-tariff barriers to the trade in US food and agricultural products’.

What are these long-standing non-tariff barriers?

India seems to have quietly agreed to allow imports of chicken legs, dairy products, and GM soybean oil without applying quantitative restrictions/non-tariff barriers.

MSMEs weak armour

There is no protection for India’s labour-intensive products.

The interim agreement specifically mentions that all labour-intensive products — textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home décor, artisanal products and certain machinery — will be subject to 18 per cent reciprocal tariff, which is in addition to the base tariff of 0 per cent to 3 per cent these products had to pay in the pre-Trump era.

The 18 per cent reciprocal tariffs on India’s labour-intensive products offer no competitive advantage to MSMEs against 19 per cent - 20 per cent tariffs on similar products from Vietnam, Bangladesh, and Indonesia.

Indian agreement to pay 18 per cent reciprocal tariff, unfortunately, is the real body blow, as India has now voluntarily agreed to pay it. These reciprocal tariffs are likely to remain in place permanently.

Surprisingly, India has agreed to levy a ‘zero’ tariff on US products that were taxed heavily earlier. That’s a massive turnaround of fortunes for India’s exporters and importers!

An avoidable deal

India should not have done this deal. A poor and developing India would pay 18 per cent tariffs on its exports to the rich and commandeering US, which would export at zero tariff!

Trump’s reciprocal tariffs have been questioned in the US Supreme Court, which is most likely to declare them unconstitutional. Trump is on borrowed time as the Supreme Court is perhaps delaying delivering the judgement only to give more time to Trump to convert reciprocal tariffs into agreed tariffs.

India has fallen into this trap. As India has agreed, 18 per cent reciprocal tariffs would stand even if reciprocal tariffs were declared unlawful.

A humiliation and disaster

A committee of US secretaries and officials would monitor whether India is importing, directly or indirectly, any Russian oil. Trump has reserved the right to reimpose 25 per cent additional duties in case India is found importing Russian oil.

This arrangement is a complete humiliation. This disastrous deal will hurt and haunt India for decades to come.

The author is a former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream Dented’, ‘Commentary on Budget 2025-2026’, and ‘We Also Make Policy’. X handle: @Subhashgarg1960.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)