Indo-US Trade and Tariff Negotiations: Some Important Issues

Indo-US Trade and Tariff Negotiations: Some Important Issues

• Trade and Tariff Negotiations
• July 15, 2025

Indo-US Trade and Tariff Negotiations: Some Important Issues

by

Dr H A C Prasad

(Former Senior Economic Adviser, Ministry of Finance, GOI)

Tariff conflict with India under Trump 1.0

 The 2018/2019 trade conflict between the US and India was triggered by two policies of the US. The first was the imposition of the global tariff on the US steel imports of 25% and additional tariffs on the US Aluminium imports of 10 % under section 232 of US Trade Expansion Act 1962.This was not exclusively against India and was directed on all countries. The second phase of Tariff Conflict between the US and India was more direct on India when GSP benefits were withdrawn from India on June 5th 2019 automatically resulting in MFN tariffs for these items formerly under GSP in imports from India, it also triggered a 25% duty on solar cells which India was exempted from as long as it was a GSP beneficiary.

After multiple pauses, India imposed retaliatory tariffs on 28 items imported from the US, from June 2019.The main items in this list were Agricultural items like Almonds, Apple fresh, Iron and Steel and Chemicals. The US even took India out of Developing Countries’ list citing India’s share in World Trade above 0,5% and on account of India being a G-20 member. As a result, India was no longer eligible for special preferences under the methodology for CVD investigations. Our earlier study shows that both the US and India were affected by these tariff measures as reflected by the fall in exports of both India and the US to each other of the tariff hiked items.

India’s Trade and Tariff Negotiations with the US under Trump 2.0

Under Trump 2, despite tariff threats by the US, efforts were made and efforts are also underway to arrive at a Trade Deal.

Steps taken

Some steps taken in India’s Budget 2025-26 which could facilitate India’s tariff negotiations with the US are the following.

• Removing seven tariff rates over and above the seven removed in 2023-24 budget resulting in only eight tariff rates remaining including “zero “rate. Our study had also pointed out the need to reduce multiple tariff rates as in 2019 there were 24 ad valorem tariff rates including the zero duty rate covering 11839 tariff lines. If NAVs (Non-Ad Valorem) tariffs as given in WTO data, are also considered, then India had 252 distinct MFN duty rates in 2018.
• Levying not more than one cess or surcharge and thereby, exempting Social Welfare Surcharge (SWS) on 82 tariff lines that are subject to a cess. Removing SWS was also suggested by us in our earlier study. 
• Tariffs for motorcycles with engine capacity not exceeding 1600cc was reduced from 50% to 40% and those with 1600cc and above reduced from 50% to 30% making Harley Davidson and Ducati more affordable to accommodate the interests of the US and Italy.

Some Important Issues for India in the Current Trade Negotiations with the US

Agriculture and GMO (Genetically Modified Organisms) Crops. Agriculture and GMO are definitely the most important thorny issues in the negotiations. Some important issues in this context are the following.

• India’s high tariffs and US’s high subsidies. Agricultural items have high tariffs in India.  Reducing the high tariffs on Agriculture items drastically involves livelihood concerns of Indian farmers. The issue of the high subsidies given by the US and other developed countries to their farmers is related to this as Indian farming could be severely affected if the US continues to give heavy farm subsidies while India lowers its agricultural tariffs. This could adversely affect Indian agriculture in which we are becoming self-sufficient.
• There is also the issue of GMO agricultural items with possible health and environmental effects. GMO Maize is one such example.
• Seeds could become costly. GMO crops cannot be used for regeneration and poor farmers who use some portion of their crop of one year as seeds of next year could be in for a rude shock.  This could also make seeds costly as farmers have to buy seeds every year and multinational firms could gain seed monopoly.
• Religious and cultural angle related to some agricultural and GMO imports Animal feed with non-vegetarian content could be fed to cattle and dairy products from such cattle could appear in the shelfs of the different food chain marts of India. This could go against our religious beliefs and also have unknown effects on our health. The mad cow disease due to consumption of affected animal meat in the UK is one such case though there are no known side effects due to consumption of dairy products from such affected cattle. There is also no guarantee that animal genes will not be used in food crops.

Therefore, great caution is needed in importing GMO food crops and food items. GMO should basically be Indian made with strict checks and controls. Suggestions like self-certification by US exporters of such items may not hold water.

Non-Agriculture Sector

While we have to be careful in opening our Agriculture sector for imports, in other sectors a more open policy is needed. Some issues in this context are the following.

There is first a need to fight the Perception War, while negotiating tariffs.

• The US is repeatedly stating that India is a high tariff country and threatening countries including India with Reciprocal Tariffs and sometimes even arbitrary high tariffs. But here are some facts. India’s simple average applied MFN tariffs (as per WTO data) is 17.0% in 2023 and trade weighted average applied MFN tariffs is at 12.0 % in 2023. For Non-Agricultural sector it is 13.5% and 9.0% respectively. Thus, at first instance India’s tariffs seem to be relatively higher than many other countries including the ASEAN countries. This however is not the real picture as around 69.2% of the tariff lines covering around 79.1 imports in the non-agricultural sector have less than 10% MFN applied tariffs in 2023. In the non-agricultural sector, import values and tariff lines are more concentrated in the lower end of the tariff range.
• Further, Effective tariffs taking into account India’s preferential tariffs to different countries, is much lower with simple average Effective tariffs at 8.7% and weighted average Effective tariffs at 4.9% in 2018 (as per TRAINS data). This shows that India’s import tariffs are not as high as it is believed to be.

If this be the case, then there is a need for India to dispel the belief that India is a high tariff country by highlighting these facts.  

Need to reduce non-agricultural tariffs. 

While there is a need to bridge the gap between perception and reality, tariffs in non-agricultural sector could be reduced near the Effective tariff levels. However, concerns of some important sectors like Automotive, Engineering and Electronics sectors should be taken care of. Greater market access by India for US in Whiskey, Ethanol and automobiles are tricky issues.

India should also try to get the maximum concessions in items which are now out of GSP including Textiles and leather sector, besides greater market access for our Pharmaceutical sector.

India should also negotiate for lower tariffs on its exports to the US.

While 26% reciprocal tariff has been proposed on India by the US including the 10% baseline tariffs, India should negotiate for a better deal with the assurance that tariffs like the BRICS tariffs, Russia related tariffs are not levied on India. The tariffs on Steel and Aluminium increased to 50% in 2025 by the US also needs to be resolved, though India has also notified to the WTO that it will impose retaliatory tariffs on the US.