India seeks mutual tariff reductions from US amid trade tensions

This stance aligns with India's broader push for a mutually beneficial trade framework, which gained momentum during Prime Minister Narendra Modi’s recent US visit. India sees the announcement of a bilateral trade agreement with the US as a crucial step toward resolving trade tensions from US President Donald Trump’s call to eliminate trade disparities with India.

By engaging in negotiations that address concerns on both sides, the two countries aim to establish a fair and balanced relationship and expand their trade to $500 billion in the next five years from the current $200 billion.

“Both countries now have a better understanding of each other’s concerns as they work towards finalizing the contours of the bilateral trade agreement," one of the two officials cited above said on the condition of anonymity.

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Without specifying whether India will follow other countries in retaliating against the US reciprocal tariff plan, this official said, “The reciprocal tariff plan is still under consideration, and discussions about imposing tariffs in response fall within the realm of a trade war. Since no immediate decision has been made, we will assess the situation once it is announced."

“We are negotiating like two friendly nations negotiate. As of now, we don’t know what shape the Reciprocal Act will take, as it’s currently in bill form. India-US relations extend far beyond trade, encompassing a range of strategic and economic issues that involve multiple ministries," the official added.

Migration on the table

To be sure, India and the US have not begun formal talks over tariff issues. However, backchannel discussions, in coordination with the external affairs ministry, have helped India avoid being included in the first list.

Beyond commerce, discussions also include matters such as migration and broader diplomatic engagements, with the ministry taking a holistic approach to address various aspects of the partnership. Different ministries are engaged in negotiations on multiple fronts, ensuring that all key issues are considered as part of the evolving relationship.

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“The bilateral agreement is not one-sided; the US was also in favour of such a deal. It is designed to increase trade, which will eventually require a free trade agreement (FTA). The specifics and contours of the agreement are still being worked out," said the second official.

“The confirmation of the United States Trade Representative (USTR) has not yet happened. Once the negotiating teams are in place, we will begin working together to develop the contours of the mutually beneficial bilateral trade agreement. Based on that, we will move forward with the next steps," this official said.

Both officials declined to comment on the specific areas or sectors under review for tariff adjustments by both nations. The US is pushing for greater market access for its agricultural products, a contentious issue for India, which has maintained a protectionist approach when dealing with agricultural matters.

This takes on added significance, given that India has taken a series of pro-US measures, including reducing tariffs on a range of items, which had caught Trump's attention. 

Notably, the latest Union budget reduced tariffs on motorcycles, benefiting US premium bike maker Harley Davidson, as well as bourbon whiskey and ethernet products, among others. The tariff on motorcycles was reduced from 50% to 30%, duty on Ethernet switches was reduced from 20% to 10% and the tariff on bourbon whiskey dropped from 150% to 100%.

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Expanding market access

According to the Distilled Spirits Council of the United States (DISCUS), India ranked 23rd among the largest export markets for American whiskey in 2024, with exports totalling $8.8 million. Despite being the "largest whiskey market by volume," India imported less American whiskey than Singapore, New Zealand, and the UAE.

However, experts suggested India go for targeted agreements in sectors like technology, defence, energy, space, and supply chains, rather than pursuing a full FTA.

“One area of potential collaboration is solar manufacturing, where China currently controls over 80% of global solar cell production and 97% of polysilicon supply, leaving the US and India reliant on imports. Setting up joint solar manufacturing in India could be a costly yet strategic move to reduce dependence on China," said Ajay Srivastava, founder, Global Trade Research Initiative (GTRI).

In FY22, India’s exports to the US stood at $75.60 billion. This grew to $78.31 billion in FY23, and remained slightly lower at $77.52 billion in FY24. From April to December 2024, exports totalled $59.93 billion, up from $56.82 billion during the same months in 2023, commerce ministry data showed.

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Mint reported on 15 February that India plans to counter Trump’s reciprocal tariffs plan with data to show that most imports from the US into India have duties less than 10%.

A joint statement released by the external affairs ministry said the US and India will work to expand market access, reduce tariff and non-tariff barriers, and deepen supply chain integration across goods and services.

However, in a factsheet on Fair and Reciprocal Tax signed by Trump before his meeting with Modi, Washington had highlighted tariff disparities, noting the US applies a 5% MFN (most-favoured nation) tariff on agricultural goods, while India’s is 39%. It also pointed out India’s 100% tariff on American motorcycles, compared to the US’s 2.4% tariff on Indian motorcycles, citing an imbalance in market access.

 

After meeting Modi at the White House on 13 February and calling him a friend, Trump, who had earlier labelled India a “tariff abuser", repeated his complaints at a joint press conference about the country’s trade policies, calling its import duties “very unfair and strong", and made it clear that India would not be spared from his tariff hikes on key trade partners.

Commerce ministry data shows that import duties on several high-value American products into India are negligible. For instance, in FY24, petroleum crude—the US’s top export to India valued at $5.03 billion—was taxed at just ₹1 per tonne, making it one of the lowest-taxed imports despite its high trade value.

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Other key exports from the US, including coal valued at $4.2 billion, large aircraft ($1.94 billion), and liquefied natural gas ($1.41 billion), face 2.5% tariff, ensuring steady trade in the energy and aviation sectors.

With a $35-billion merchandise trade surplus, India seeks to avoid US tariff hikes on key exports like garments, electronics, engineering goods, and pharmaceuticals. Exports of these four categories rose from $38.84 billion in FY22 to $46.43 billion in FY24, with April-December 2024 shipments at $37.05 billion.