In typical Donald Trump style, the US President took to Truth Social last week to announce what he said was a sweeping trade deal with India—saying that the 25% tariff imposed on Indian goods would be reduced to 18%, that India would bring its tariffs and non-tariff barriers against the US down to “ZERO”, commit to “BUY AMERICAN” at unprecedented levels including over $500 billion worth of US energy and other products, and even stop buying Russian oil. Donald Trump’s claims were expansive, dramatic, as well as maximalist, leaving immense scope for politics to be played in India, and that’s exactly what happened. While such claims created a furore in Parliament, with the Opposition accusing the government of compromising with India’s interests, the subsequent joint statement, issued on the intervening night of 6 and 7 February, made it clear that no such thing was happening. The deal is not yet done, what we have instead is a framework for an interim agreement, where the two countries commit themselves to continue negotiating towards a USIndia Bilateral Trade Agreement (BTA). While the framework confirms the 18% reciprocal tariff rate, it comes with a caveat in the form of Donald Trump’s Executive Order of 6 February, saying “India has committed to stop directly or indirectly importing Russian Federation oil”. However, this does not find any mention in the joint statement.
How crucial a factor this will be in ensuring that the 18% tariff rate will hold? Are we looking at a gradual phasing out of the purchase of Russian oil? It’s not that India cannot do without Russian oil. There was a time, not too long ago, that India was hardly buying any Russian oil, so stopping such purchase will not be about compromising India’s sovereignty. Surely the government will take a considered decision on this matter. After all, the US is India’s largest trading partner and a trade deal with that country, if implemented properly, can be a huge boost to our economic engine. At the same time, the framework agreement proves that India is cautious and is not ready to remove all tariffs or non-tariff barriers, which the Americans want it to do. Instead, it is reducing tariffs on US industrial goods and a set of limited agricultural and food products. The agreement also promises to discuss certain long-pending issues in areas such as medical devices and ICT.
Even the promise to buy products worth $500 billion over five years, is presented as an “intent” on India’s part, and not as a commitment. This is in keeping with Commerce Minister Piyush Goyal’s explanation that such purchases would be guided by India’s requirements and market dynamics.
The framework agreement is just the beginning. There is some way to go before the BTA can be signed. Amid this the big worry is President Trump himself. He has personalised and weaponised American foreign policy to suit his domestic interests to an extent that the whole world order has been upended, throwing American relations with both allies and partners in turmoil. For that matter, his rather random tariff regime is hurting even American domestic interests—both farmers and consumers. Hence, India will need to tread carefully, because a deal is done, until it has been undone by President Trump, who is only interested in coming out as a winner to his base.
As for the timing of the framework agreement, there is increasing consensus that the publicity that the “mother of all deals”—the India-European FTA—got worldwide has catalysed the US President to try and grab the headlines by announcing potentially an even bigger deal. The arrival of Sergio Gor as the new US ambassador would have helped too. Ambassador Gor seems to have come briefed on the importance of India-US relations, if not by President Trump’s immediate associates, most of whom are inexorably anti-India, but by those who understand that India-US relations are one of the most consequential relationships of the 21st century. A lot depends on this bilateral trade deal, including how the future of the Indo-Pacific shapes up, and subsequently the direction the world takes.
In conclusion, the Indian government must be commended for refusing to kowtow to a businessman who comes to the negotiating table with the intention to extort. India has held its own and diversified its trade interests rapidly. This diversification should continue to gather pace, even as India and the US move towards a possible bilateral trade agreement.
