There is significant unrealized potential in this relationship, even without the ‘China factor’ and other geopolitical exigencies that have led to some form of strategic alignment between India and USA.
NEW DELHI: India and the United States share an increasingly deepening strategic partnership, but a glaring omission remains, that they have never signed a comprehensive trade and investment agreement. Despite growing commerce and shared democratic values, past attempts at even modest trade deals have faltered. Today, shifting supply chains and rising geopolitical tensions create a fresh opportunity. The Indo-Pacific is becoming the focal point of global competition. A strong trade pact would benefit both economies while strengthening their ability to counter China’s economic influence.
The numbers tell a clear story. USA accounts for over 18% of India’s exports, making it one of India’s largest trading partners. India accounts for less than 3% of US exports to the world and a little over 3% of the total imports to the United States. Contrast this with China which accounts for 11.6% of the total imports to the United States even after multiple tariff wars and trade restrictions. The share of China in total US Direct investment abroad on a historical cost basis (unadjusted) is 1.9% while for India, it is 0.74%; i.e., for every $100 invested abroad, $1.9 goes to China and $0.74 goes to India. There is significant unrealized potential in this relationship, even without the “China factor” and other geopolitical exigencies that have led to some form of strategic alignment between India and USA. A trade agreement that lowers tariffs and simplifies investment rules would accelerate growth and create jobs for both countries as Indian companies look towards increasing investments in the United States.
There are multiple stakeholders who stand to gain from such an arrangement. Standardized regulations and lower barriers would enable joint innovation in IT, semiconductors, and advanced technology. The India-US initiative on critical and emerging technologies (iCET), which includes semiconductors, space, quantum, artificial intelligence, and other frontier technologies, presents a significant opportunity for Indian industry. However, its success depends on the establishment of clear trade and investment rules, including dispute resolution mechanisms, to facilitate long-term collaboration.
India, one of the world’s largest energy importers, could secure a stable supply of American oil, liquefied natural gas (LNG), and renewable energy technology, fostering energy security while strengthening bilateral trade. As a global pharmaceutical powerhouse, India could expand access to affordable generic drugs and medical devices through easier trade, potentially lowering healthcare costs in the US while boosting Indian exports.
However, concerns regarding US Intellectual Property Rights (IPR) laws must be addressed to ensure equitable trade in pharmaceuticals and medical devices. India could explore regulatory frameworks that provide greater access to the US medical device industry while ensuring affordability. A long-term familiarity with healthcare systems on both sides could also foster growth in medical tourism and research collaborations, benefiting patients and industries alike.
Tariff reductions on key industrial goods—auto parts, textiles, and machinery—would enhance the competitiveness of both economies while reducing reliance on Chinese supply chains, a shared strategic objective. Lower trade barriers could also foster deeper manufacturing collaborations, particularly if domestic content requirements are renegotiated within a comprehensive trade agreement. India stands to gain from partnerships with companies like Blue Origin, SpaceX, Tesla, and OpenAI, which could create both upstream and downstream linkages in critical industries, potentially leading to long-term direct investments in India’s startup ecosystem. Meanwhile, the US would benefit from India’s growing consumer market and access to some of the world’s best engineering talent—a strength recognized by multiple US CEOs. India is currently reviewing import tariffs on over 30 items, including luxury cars and solar cells, aiming to lower average tariffs ahead of Prime Minister Narendra Modi’s upcoming visit to the US American companies like Caterpillar, John Deere, and General Electric are major exporters of machinery to India, and reduced tariffs could enhance their market presence.
BEYOND ECONOMICS: A STRATEGIC NECESSITY
A US-India trade deal isn’t just about commerce. It is a strategic imperative. Both countries have a vested interest in offering an alternative to China’s economic dominance in the Indo-Pacific. For India, deeper economic ties with America lessen its vulnerability to economic coercion. For the US, India is a crucial partner in securing diversified, resilient supply chains. A comprehensive trade agreement would send a powerful message—that two of the world’s largest democracies are committed to leading an open, rules-based economic order.
The road to a US-India trade agreement is littered with failed negotiations. A tentative deal collapsed a few years ago when both sides refused to make key concessions. The sticking points remain. India has some of the world’s highest import duties, according to US officials. Meanwhile, India wants relief from US tariffs on steel and aluminium. Both sides need to compromise. Agriculture is another flashpoint. The United States sees India’s Sanitary and Phytosanitary (SPS) measures as barriers to American farm exports, while India defends them as essential for food safety. The two nations also disagree over farm subsidies—the US calls India’s support programs market-distorting, but India sees them as vital for food security. The issue is further complicated by powerful agricultural lobbies in both countries, making quick resolution unlikely. Given these challenges, leaders in Washington and New Delhi must exercise political will to set aside these disputes and focus on early harvest measures—smaller, mutually beneficial agreements that can build trust before tackling the tougher issues.
US visa quotas limit Indian IT professionals, while American firms face investment barriers in India’s banking and insurance sectors. The new Trump administration has made cracking down on illegal immigration a priority, complicating the debate on H-1B visas. The issue has divided the MAGA (Make America Great Again) coalition, making visa policy a political battleground. Yet, the administration should recognize that Indian professionals have played a key role in America’s technological dominance. They are among the most law-abiding, hardworking contributors to the US economy, not just in business but also in politics, where Indian Americans and their political action committees (PACs) have influence across party lines. Meanwhile, India should lower barriers in banking and insurance, including investment limits and local ownership requirements. As Indian firms expand globally, embracing foreign competition will strengthen domestic industries rather than weaken them. After all, growth and risk are inseparable companions.
A SMARTER APPROACH: LEARNING FROM INDIA’S OTHER TRADE DEALS
India’s recent trade agreements with the UAE and Australia provide a blueprint for a US-India deal. The India-UAE CEPA agreement eliminated tariffs on 80% of goods immediately and 90% over a decade. It also introduced fast-track approvals for Indian pharmaceuticals, a model that could benefit US medical exports. Under the India-Australia ECTA, Australia eliminated tariffs on 96% of Indian exports, while India reduced duties on critical minerals and premium foods. This approach—offering high-value market access for both sides—could be replicated with the US.
Both deals also highlight the importance of services. A US-India trade pact should include commitments on services access and mobility provisions. The US has a huge services market in IT, finance, and education, areas where India seeks greater access. Conversely, the US is interested in India’s banking and e-commerce sectors.
A well-structured agreement could include, a) easier work visas for Indian professionals, similar to Australia’s 1,000-visa mobility scheme, b) recognition of Indian IT and engineering credentials to facilitate smoother professional exchanges, and c) targeted investment commitments—as seen in India’s recent trade pact with the European Free Trade Association (EFTA)—where market access in specific sectors is linked to foreign direct investment (FDI) incentives.
By incorporating these elements, a US-India trade deal could unlock massive opportunities while maintaining a balanced approach to market access and regulatory cooperation. Incremental steps—such as resolving minor trade disputes or restoring India’s Generalized System of Preferences (GSP) status, which grants duty-free access to US markets—could build momentum toward a broader agreement. A US-India trade and investment agreement would be a milestone in global economic diplomacy. It would unlock billions in new trade, create jobs, and reinforce a rules-based order in the Indo-Pacific. Getting there won’t be easy. Both nations must make hard compromises and resist the temptation of short-term protectionism. But the payoff—a stronger, more resilient economic partnership—would be well worth the effort. If the CEPA and ECTA trade models are any guide, the US and India can strike a deal that benefits workers, businesses, and global stability. The time to act is now.
* Pooja Arora is doctoral scholar at Jawaharlal Nehru University.