President Trump’s imposition of reciprocal tariffs with a multitude of global partners and competitors alike has elicited a plethora of reactions ranging from outrage to agreements to renegotiate trade terms. Allies, partners, and adversaries alike have been placed on the president’s tariff radar. As a major trading partner, India is no exception to this policy decision. India is bracing for the imposition of new tariffs. However, unlike most other countries, India is in the process of negotiating with the American government on a bilateral trade agreement that could offset some of the negative implications on the Indian economy and its relations with the U.S.

As two of the world’s largest democracies and significant economies, bilateral trade between India and the U.S. has grown steadily, driven largely by mutual interests in economic prosperity, technological advancement, and an alignment in geopolitical interests. Toward securing a mutually beneficial trade agreement, the two sides have engaged in negotiations despite Trump’s unflinching position on tariffs. A trade delegation led by Brendan Lynch, Assistant U.S. Trade Representative for South and Central Asia, arrived in New Delhi to hold talks with Indian counterparts from March 25 to 29, 2025. This visit was aimed at finalising the first tranche of a Bilateral Trade Agreement (BTA) in the latter half of 2025.

The negotiations in New Delhi on trade in March 2025 represented a pivotal moment that offered an opportunity to redefine the bilateral relationship. This was followed by a telephonic discussion between India’s External Affairs Minister Jaishankar and Secretary of State Rubio underscoring the critical importance of addressing the tariffs question. Both leaders agreed to advance a fair and balanced trade agreement. Further, India has not retaliated to the tariff of 26% proposed by President Trump. ^[1] The negotiation process is ongoing and the finalization of the BTA is forthcoming, the outcome will deeply impact not only bilateral trade relations but also the broader strategic and global standing between both democracies. In light of these developments, this paper sets out to map and analyse trade relations between India and the U.S. and how New Delhi is trying to mitigate major and possibly detrimental changes that Trump’s measures could impose.

Historical Foundations: From Independence to the Cold War

Trade relations with the U.S. began to take shape following India’s independence from British colonial rule in 1947. Under the leadership of Prime Minister Jawaharlal Nehru, India pursued a policy of non-alignment and focused on self-reliance and strategic autonomy. There was limited scope of economic engagement in the 1950s and 1960s, however, India received aid from the U.S. through the PL-480 ^[2] programme which provided much-needed food grains. The Indian government’s protectionist policies, which included high tariffs and restrictions on foreign investments, also created structural barriers for greater bilateral trade. ^[3] The rift was further exacerbated by India’s nuclear test in 1974, which precipitated sanctions significantly reducing U.S. aid. Further, India’s Cold War policy of non-alignment, coupled with its close ties with the Soviet Union, relegated trade relations with the U.S. to the periphery compared to broader diplomatic relations. However, the economic situation in India was no longer justifiable as the protectionist policies it had adopted since Independence did not translate into GDP growth and had continued to impoverish millions of Indians.

The Post-Cold War Shift: Liberalization and Growth

In 1991, with the dissolution of the Soviet Union and the end of the Cold War India successfully liberalised its economy marking a significant turning point. India had faced a balance-of-payment crisis caused by high fiscal deficit and a steep decline in foreign reserves making it difficult to pay for imports and pay off its foreign debt. Under the leadership of Prime Minister PV Narsasimha Rao and Finance Minister Manmohan Singh, much of the protectionist frameworks were dismantled while tariffs were significantly reduced. The large-scale entry of foreign investment and opening up of the Indian market to global trade also had a considerable impact on India’s economy. This decision had coincided with America’s growing interest in emerging markets particularly as various countries around the world began to embrace democracy, globalisation and an open market economy. ^[4]

India’s trade relations also began to expand in the 1990s, with the import of machinery, aircrafts, and chemicals from America while India increased exports of textiles, precious metals and pharmaceuticals to the U.S. The decade between the 1990s and the 2000s saw significant rise in trade volumes although minor irritants persisted. Although the process of liberalization was coupled with an open market, India continued to impose high tariffs in trade and on intellectual property regime. This was a major irritant for the U.S. However, as relations continued to grow through geopolitical alignment and as political will for greater cooperation became greater from leaders of both countries a significant milestone was achieved in 2005. The U.S.-India Civil Nuclear Deal, which was not directly related to trade, signalled a thaw in relations and boosted confidence in both countries which had an impact on other areas of the bilateral relationship.

The 21st Century: Strategic Partnership and Trade Tensions

Despite the current issue of tariffs, India’s strategic partnership with the U.S. has remained stable. It is driven primarily by shared concerns over the rise of China and a mutual interest in a rules-based international order. Throughout the decades of the 2010s, trade became the cornerstone of this relationship. In a joint statement by President Trump and Prime Minister Modi on 13 February 2025, both leaders committed to enhancing bilateral trade to $500 billion by 2030. ^[5] While the joint statement precedes the Trump administration’s push for reciprocal tariffs, the agreement made between the two leaders forms the foundation for the current trade negotiations. The U.S. is one of India’s largest trading partners, while India is ranked among the top ten of U.S. trading partners. ^[6] The key areas of the bilateral trade relations include information technology, pharmaceuticals, energy, and defence. Further, recognising India’s vast market potential and growing economy, large American companies including Apple and Boeing have made considerable investments in the country. Concurrently, Indian companies such as Tata, Wipro and Infosys have made significant contributions to America's IT infrastructure with their global service models earning them a trustworthy reputation and partners with Fortune 500 companies.

During President Trump’s first term in office (2017-2021), trade became a major area of contention. He had criticized India for imposing 12% tariffs while the U.S. imposed 2.2% on Indian goods. This led to the Trump administration revoking India’s Generalized System Preferences (GSP) status in 2019. ^[7] The GSP is a preferential tariff system where developed countries like the U.S. offer lower or zero tariffs on imports from developing countries to help improve their economic growth and also encourage trade. The scrapping of the preferential status had a substantial impact on Indian exports. India retaliated by imposing its own set of tariffs on U.S. exports of almonds and steel among other commodities. ^[8] Despite the setback, there was an attempt to negotiate a “mini” trade deal in 2020 as Trump recognised the importance of India-U.S. bilateral trade which had almost touched $115 billion in 2019. ^[9] However, the deal could not be made in time and Trump had been voted out of the White House in the 2020 presidential election.

When President Biden took office, his administration adopted a collaborative tone compared to his predecessor. Trade relations were characterized by emphasizing supply chain resilience and cooperation in clean energy. PM Modi’s state visit in 2023 to Washington highlighted the importance of India-U.S. relations but no substantial trade agreement materialized. The Biden era saw more continuity than change in the bilateral trade relations. Thus, with a second Trump administration there was a renewed push for more comprehensive trade relations especially after a better trade deal could not be negotiated in his first term. Trade between the two countries was significant as shown in the figure below. However, U.S. policymakers in the Trump administration had been attempting to focus on reciprocal trade to reduce the $45.7 billion deficit with India.

The New Delhi Negotiations: March 25-29, 2025

Trump had discussed tariffs and how he would use it as a tool to give a fillip to the U.S. economy. The imposition of tariffs on America’s major trading partners had generated apprehension in world capitals including New Delhi. PM Modi’s visit to Washington in February 2025 began the negotiation process to minimize the possible fallout of President Trump’s tariffs. This was followed by a series of meetings leading up to the pivotal meetings in New Delhi to discuss the first tranche of a BTA. Although details of the meeting have not been made public, particularly about the finer points that were agreed upon, the discussions did however center on market access, tariffs and non-tariff barrier reductions and supply chain integration. ^[10]

There are two key factors that initiated these negotiations. First, Trump’s reciprocal tariffs were set to take effect on 2 April 2025 targetting countries with trade surpluses such as India. New Delhi sought exceptions or concessions by making certain adjustments in its own tariffs. It scrapped the 6% digital service tax and offered to cut tariffs on U.S. agricultural products. ^[11] Second, with the change in the global trade landscape particularly with rising protectionism and the weakening of multilateral institutions like the WTO, both countries have decided to pursue and enhance bilateral trade relations as a pragmatic alternative to boost their economies.

However, there were substantial challenges in the trade negotiations as the U.S. sought increased access to the Indian market to sell American agricultural products. Whereas India has kept this sector closed due to domestic concerns. ^[12] The U.S. had also pushed for greater sale of military hardware including the potential sale of F-35 fighter jets. ^[13] Both sides have agreed to continue negotiations virtually in the coming months, which will be followed by an in-person round of meetings. While specific details of these future interactions have not been dated, it has signalled a structure path toward concluding a comprehensive agreement in the latter half of 2025.

Significance and Challenges Ahead

The negotiations are significant for New Delhi for several critical reasons. They promise to unlock economic opportunities for businesses, enhance supply chains, and foster innovation while aligning with the U.S.-India Comprehensive Global Strategic Partnership. For both countries, a robust trade deal strengthens the partnership particularly in the midst of tensions with China. Trade would also double more than the current levels if the $500 billion target is met by 2030. If achieved, it would significantly enhance economic growth for both countries and potentially intensify diplomatic ties. However, if India’s tariffs and America's reciprocal threats persist, it could derail progress if not addressed with flexibility and in time. Domestically, Trump’s “Make America Great Again” slogan and policy aimed at fixing America’s economic stagnation could complicate future trade talks. For India, the compliance with the WTO rules and the Most Favored Nation principle adds a layer of complexity which requires sensitivity on the part of the U.S. during the BTA negotiations.

Conclusion

India-U.S. trade relations have evolved from complexity during the Cold War to gradual convergence as the global geopolitical landscape transformed. Although there have been periods of tension, the relations have also been punctuated by transformative breakthroughs. Despite ideological differences between the U.S. and India, followed by the decades following the end of WWII, India’s gradual progression through the Cold War and its economic reforms of the 1990s, both countries have established strong political and economic ties. What eventually materializes from the trade negotiations in 20205 is unknown, however, both sides want mutual benefits and economic prosperity. If successful, it will stand as a defining chapter in the history of Indo-U.S. relations with the potential to serve as a model for diplomatic and economic cooperation in an increasingly uncertain global order.

References

^[1] Archana Rao (2025), US Hikes Tariff on Indian Imports to 26%: All You Need to Know, India Briefing, 4 April 2025, https://www.india-briefing.com/news/us-imposes-26-tariff-on-india-36763.html/ (Accessed 8 April 2025)
^[2] Subramani Ra Mancombu (2022), How India overcame food emergency attained self-sufficiency, The Hindu Business Line, 15 August 2022, https://www.thehindubusinessline.com/india-at-75/overcoming-food-emergencies-through-imports-from-us-via-pl480/article65753881.ece (Accessed 5 April 2025)
^[3] Nishant Chaturvedi (2024), Major Exports of India From 1947 to 1990, Swadeshi Shodh Sansthan, 16 December 2924, https://swadeshishodh.org/major-exports-of-india-from-1947-to-1990-trends-and-directions/ (Accessed 5 April 2025)
^[4] Mark T Berger (2001), The post-Cold War predicament: A Conclusion, Third World Quarterly, Vol 22, No 6, pp 1079-1085, chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://library.fes.de/libalt/journals/swetsfulltext/12303110.pdf
^[5] MEA (2025), India - U.S. Joint Statement, Ministry of External Affairs, Media Center, 13 February 2025, https://www.mea.gov.in/bilateral-documents.htm?dtl/39066#:~:text=They%20resolved%20to%20deepen%20the,to%20%24500%20billion%20by%202030. (Accessed 6 April 2025)
^[6] Rosa De Acosta (2025), What you need to know about US-India trade, in 4 charts, CNN Business, 13 February 2025, https://edition.cnn.com/2025/02/11/business/india-us-trade-explainer-intl-hnk-dg/index.html(Accessed 6 April 2025)
^[7] United States Trade Representative (2019), United States Will Terminate GSP Designation of India and Turkey, 4 March 2019, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/march/united-states-will-terminate-gsp (Accessed 5 April 2025)
^[8] ENS Economic Bureau (2019), India imposes retaliatory tariffs on 28 products imported from the US, The Indian Express, 16 June 2019, https://indianexpress.com/article/business/economy/india-imposes-retaliatory-tariffs-on-28-products-imported-from-the-us-5782719/ (Accessed 9 April 2025)
^[9] Joe C Mathew (2020), India-US mini trade deal: Low duty on medical devices; pact in final stages, BT Business Today, 21 August 2020, https://www.businesstoday.in/latest/economy-politics/story/india-us-mini-trade-deal-low-duty-on-medical-devices-pact-in-final-stages-270703-2020-08-21 (Accessed 6 April 2025)
^[10] PTI (2025), India, US would focus on increasing market access, reducing duties, non-tariff barriers: Govt, The Economic Times, 25 March 2025, https://economictimes.indiatimes.com/news/india/india-us-would-focus-on-increasing-market-access-reducing-duties-non-tariff-barriers-govt/articleshow/119475173.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (Accessed 4 April 2025)
^[11] Aftab Ahmed and Manoj Kumar (2025), India to scrap digital ad tax, easing US concerns, Reuters, 25 March 2025, https://www.reuters.com/world/india/india-proposes-remove-equalisation-levy-digital-services-government-source-says-2025-03-25/#:~:text=NEW%20DELHI%2C%20March%2025%20 (Accessed 5 April 2025)
^[12] ET Online (2025), Agri sector just can't stay closed: US Commerce Secretary Urges India to Open the sector for better bilateral ties, The Economic Times, 8 March 2025, https://economictimes.indiatimes.com/news/economy/foreign-trade/indias-agri-sector-just-cant-stay-closed-us-commerce-secretary-urges-india-to-open-the-sector-for-better-bilateral-ties/articleshow/118802588.cms?from=mdr (Accessed 8 April 2025)
^[13] Nandini Singh (2025), Trump paves way for sale of F-35 jets to India in billion-dollar arms deal, Business Standard, 14 February 2025, https://www.business-standard.com/external-affairs-defence-security/news/us-india-defence-modi-trump-f35-weapons-deal-military-modernisation-125021400805_1.html (Accessed 5 April 2025)

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>