The arrival of a high-level US trade delegation in New Delhi marks yet another attempt to unlock the full potential of India–US economic ties. Despite being each other’s largest trading partners in recent years and clocking nearly $200 billion in annual trade, the relationship still operates without a comprehensive trade framework. The current talks reflect both urgency and fatigue: urgency because tariffs and regulatory frictions are beginning to bite, and fatigue because multiple negotiating rounds have failed to deliver a breakthrough.
Why the Talks Have Regained Momentum
The immediate trigger is the sharp escalation in trade tensions over the past year. Washington has imposed cumulative tariffs of around 50 per cent on several Indian goods, citing trade imbalances. New Delhi has responded by holding firm that no broader agreement is possible unless these punitive duties are rolled back. With exporters on both sides facing rising costs, there is growing recognition that prolonged stalemate is economically self-defeating.
At the same time, strategic convergence in the Indo-Pacific has created political goodwill that both sides now want to convert into tangible economic outcomes. Trade, rather than security cooperation alone, is increasingly seen as the missing pillar of the partnership.
Core Fault Lines: Agriculture, Tariffs, and Domestic Politics
Agriculture remains the most politically sensitive issue. The US is under pressure from its powerful farm lobbies to secure greater access for products such as corn, soybeans, and rice as it diversifies exports away from China. India, however, has consistently resisted opening its agriculture and dairy sectors, citing farmer livelihoods, food security, and socio-economic sensitivities.
Recent threats of additional US tariffs on Indian rice underline how domestic political pressures can quickly derail negotiations. The broader challenge is that trade talks are not just bilateral bargaining exercises but are deeply shaped by electoral and lobby-driven constraints in both countries.
Regulatory Divergence and the Philosophy of Liberalisation
Beyond tariffs, regulatory standards have become a major source of friction. US officials argue that India’s stringent regulations function as non-tariff barriers, while India maintains that these rules reflect legitimate concerns around consumer safety, public health, and cultural norms.
This divergence points to a deeper philosophical gap. India’s trade policy has traditionally favoured gradual and cautious liberalisation, whereas the US seeks faster convergence with its own regulatory frameworks. Bridging this gap will require long-term confidence-building rather than quick fixes.
Digital Trade and Skilled Mobility: New-Age Flashpoints
The trade agenda has expanded into areas that were once peripheral. India’s data localisation requirements and draft e-commerce rules, framed around the idea of “digital sovereignty”, have drawn strong pushback from US technology companies. Washington is pressing for easing of data-storage mandates in exchange for deeper digital cooperation.
Skilled labour mobility adds another layer of complexity. Indian professionals underpin services exports, especially in IT, yet US visa policies remain restrictive. The recent announcement of a steep fee on new H-1B petitions has reinforced Indian concerns. Although formally outside trade agreements, New Delhi sees mobility as inseparable from a balanced economic partnership.
Energy Cooperation and Strategic Diversification
Energy has emerged as a pragmatic area of convergence. India’s reliance on Russian oil has drawn scrutiny from Washington but also highlights India’s vulnerability to supply shocks. A trade framework could facilitate higher imports of US LNG and collaboration in renewable energy technologies, aligning India’s energy security needs with US export interests.
Such cooperation would serve both economic and geopolitical objectives, reducing dependence on politically sensitive suppliers while expanding a major US export segment.
India’s Evolving Trade Strategy and the US Factor
India’s broader trade posture has shifted significantly since its withdrawal from the RCEP in 2019. Instead of large multilateral pacts, New Delhi is pursuing targeted bilateral and mini-lateral agreements with partners such as the UAE, Australia, the UK, and the EU. This reflects a calibrated approach aimed at managing import risks while integrating into global supply chains under a “China+1” strategy.
Within this framework, the US occupies a central place. For India, closer trade ties with the world’s largest economy are key to securing its geoeconomic position in a multipolar world. For the US, India represents both a strategic counterweight in Asia and a market with long-term potential to rival China.
The Likely Shape of an Initial Deal
Signals from both sides suggest a willingness to move incrementally. A first-stage package is likely to focus on areas with high economic payoff and relatively manageable domestic costs. Tariff de-escalation is the most obvious anchor, as rolling back recent duties would immediately ease trade flows and restore confidence.
More contentious issues—agriculture, data governance, and labour mobility—are likely to be sequenced for later rounds, possibly extending into 2026. The challenge will be to insulate this process from election cycles and short-term political shocks.
What This Means for the Indo-Pacific Economic Order
If managed carefully, an India–US trade framework could go beyond bilateral gains. Joint rule-making in areas such as critical technologies, minerals, and semiconductor supply chains would shape the wider Indo-Pacific economic architecture. While frictions will persist, a structured agreement could anchor the partnership in shared prosperity, risk diversification, and long-term strategic stability.
What to Note for Prelims?
- US is India’s largest trading partner in recent years; bilateral trade nearing $200 billion.
- Key friction areas: tariffs, agriculture, data localisation, visas.
- India’s post-RCEP trade strategy focuses on selective FTAs.
- Energy cooperation and digital trade as emerging domains.
What to Note for Mains?
- Analyse the political economy constraints shaping India–US trade talks.
- Discuss how regulatory divergence reflects differing development philosophies.
- Evaluate the strategic significance of an India–US trade pact for the Indo-Pacific.
- Examine challenges in balancing digital sovereignty with global integration.
