US-India Trade Deal Negotiations (UPSC-RAS)

Current scenario -

• USTR (US Trade Representative) Jamieson Greer led his first trade delegation to India after over a year of negotiations. Both sides described as "closer than ever" to finalising a bilateral trade deal. Greer indicated only "1%" of the deal was left to conclude.The visit encapsulates America's "carrot-and-stick" approach to trade deals globally.

The Carrot and the Stick-

1. The Carrot - US consumer market access.
2. privilege of selling into the world's most lucrative consumer market is a "mighty carrot".

The Stick -Tariffs-

1. A tariff is a "formidable stick" US imposed sweeping reciprocal tariffs on several countries under IEEPA (International Emergency Economic Powers Act.
2. Supreme Court struck these down in February, administration now using alternative legislation.

Key US Legislative Tools

• US proposed 12.5% tariffs on India findings of second Section 301 investigation expected before July 24.

India-US Trade –

♦ India's export surplus with US slipped over 40% from $5.02 bn (May 2025) to $2.94 bn (May 2026).

♦ India runs a goods trade deficit with 9 of its 10 top trading partners.

♦ US is the only major economy to which India exports more than it imports.

♦ US now accounts for nearly 20% of India's total exports (up from 10% in 2010-11).

♦ India runs an annual goods trade deficit of over $300 billion overall.

Key Sector Data

Petroleum exports (India to US, March):

• Slipped 24.02% to $235.47 mn (from $309.91 mn).

India's imports from US (March):

• Up 130.95% to $321.73 mn (from $139.31 mn a year ago).

Electronic components (India to  US, March):

• Slipped 33.41% from $203.54 mn to $135.54 mn.
• India's imports in this category jumped 136.30% to $431.89 mn.

The Shrinking Surplus is a Worry-

♦ Declining due to steep reciprocal tariffs in place for 6 months.

♦ From US perspective: talks aimed at protecting and reviving US industrial base.

♦ High-value tech product imports into India will increase  erodes goods trade surplus further.

♦ India's dependence on US market has grown significantly over the last decade.

Core Areas of Dispute

US Demands on India-

• Agricultural products  US farm goods receive far higher government support compared to India; US wants better access.
• India's non-tariff barriers across sectors hurting US exporters.
• Greer called India a "difficult nut to crack"  differences in agriculture negotiations.
• Wants India to be a "viable alternative market" to China.

India's Concerns

• Surge in US agricultural imports  threatens Indian farmers.
• High-value tech product imports  erodes trade surplus.
• Farm groups (BKU/Rakesh Tikait) warned: without adequate tariff protection, Indian farmers cannot compete with subsidised US farm imports.
• Concern over US intellectual property rights regime  Greer has argued China's approach of slashing barriers while keeping its own markets closed is unfair.

Investment Flows - The FDI/FPI Angle

FDI-

• India saw gross Foreign Direct Investment inflow rise to new record of $94.53 billion in 2025-26  up 17% from previous year
• Net FDI figure - mere $7.65 billion (RBI data).

FPI (Foreign Portfolio Investment):

• Inflows rose sharply in February on back of global investor sentiment reversing + signing of interim trade deal (India-US).
• Interim deal: eliminated penal 25% tariff, reduced reciprocal tariff to 18% from 25%.
• However, from end of February: foreign capital exited $13.6 bn (March), $7.56 bn (April).

The Interim Trade Deal (Feb 2025 onwards)

• Trade talks formally began after this visit.
• Interim deal eliminated penal 25% tariff and reduced reciprocal tariff from 25% to 18%.
• Made India the worst-hit country when 50% tariffs were imposed in August.

 Geopolitical/Strategic Dimension

• US opened 3 Section 301 investigations on India  significant pressure tool.
• US has sealed deals with nearly a dozen trade partners: EU, Japan, South Korea, several ASEAN countries  India is among the handful yet to formally sign.
• China angle: Greer has long argued Chinese ambitions are an "existential threat to US"; wants India as alternative manufacturing base.
• Over past 3 decades, US slashed barriers but others kept markets closed and artificially boosted exports the trade imbalance the US is now trying to correct.