The US announced a 25 per cent tariff on Indian imports and penalties for buying Russian military and energy supplies. This move came just before the deadline to finalise trade agreements with India. It affects India’s trade position and speeds up its negotiation timeline with the US. Meanwhile, China is reportedly closer to a deal with the US that offers more favourable tariff terms.
Recent Developments in US-India Trade Relations
The US imposed a 25 per cent tariff on Indian goods due to stalled trade talks. Penalties related to India’s Russian imports could add further costs. India faces pressure to conclude an interim trade deal quickly, possibly before October. China’s advanced talks with the US give it a potential advantage in tariff reductions and waivers.
Comparative Tariff Scenarios for India and China
China may receive tariff cuts to 10 per cent from 125 per cent on some goods. The US tariff on China remains higher than India’s current 25 per cent but could improve with a deal. India’s tariff without penalties compares well with countries like Indonesia and Vietnam. However, penalties linked to Russian imports and the BRICS tariff may increase India’s trade costs substantially.
India’s Negotiation Challenges and Red Lines
India maintains WTO-compliant tariffs and refuses to compromise on sensitive sectors like agriculture. This principled stance prevents a one-sided deal but slows progress. The US demands zero-duty access to Indian markets, which India resists. India may offer concessions on defence, natural gas, and nuclear reactor imports to the US as part of negotiations.
Impact on Indian Exporters and Economic Growth
Uncertainty over tariffs causes hesitation among US buyers, affecting Indian exports. Chinese manufacturers reroute exports to Europe at low prices, increasing competition for India. Higher US tariffs risk slowing India’s GDP growth, with economists predicting downward revisions to growth forecasts for FY2026.
Future Prospects for Trade Agreements
India aims to secure an interim deal soon and build on it in subsequent talks potentially running until 2026. Final decisions may depend on direct dialogue between the Prime Minister of India and the US President. A balanced deal could reduce tariffs to between 10 and 15 per cent, similar to agreements with the UK and Japan.
Broader Trade and Geopolitical Context
US secondary tariffs target countries importing Russian oil amid the Ukraine conflict. China asserts its sovereign right to energy imports despite US pressure. The US-China tariff truce remains fragile with ongoing talks but no breakthrough. India’s trade strategy involves balancing relations with the US, Russia, and China amid shifting global dynamics.
Questions for UPSC:
- Critically discuss the impact of unilateral tariffs on global trade relations with examples from recent US-India and US-China trade negotiations.
- Analyse the role of sovereign energy policies in international trade conflicts, taking the US sanctions on Russian oil imports as a case study.
- Examine the challenges faced by emerging economies in balancing trade diplomacy and domestic economic interests, with reference to India’s stance in WTO-compliant tariffs and agriculture sector.
- Discuss in the light of recent developments how geopolitical conflicts influence international trade agreements and economic growth prospects of affected countries.
