[IMPORTANT: Make this 4 times longer with much more detail]
Argument An expert’s point of view on a current event. It’s Time for a U.S.-India Trade Deal This time around, Modi and Trump should seize the opportunity to strike a substantial bilateral agreement. By Kenneth I. Juster , a distinguished fellow at the Council on Foreign Relations, and Mark Linscott , a senior advisor at the U.S.-India Strategic Partnership Forum and the Asia Group. U.S. President Donald Trump and Indian Prime Minister Narendra Modi arrive for a joint press conference at Hyderabad House in New Delhi on Feb. 25, 2020. U.S. President Donald Trump and Indian Prime Minister Narendra Modi arrive for a joint press conference at Hyderabad House in New Delhi on Feb. 25, 2020. Prakash Singh/AFP via Getty Images My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In Foreign & Public Diplomacy Economics United States China India January 21, 2025, 2:58 PM Comment icon View Comments ( 0 ) Ignore the conventional wisdom in Washington and New Delhi that the U.S.-India trade relationship is likely to deteriorate during U.S. President Donald Trump’s second term: The two countries in fact have a huge opportunity to expand trade and a realistic path forward for doing so. Trump’s Second Term Ongoing reports and analysis Though U.S.-India economic ties have grown steadily in the 21st century, this cooperation has underperformed relative to the extraordinary advances in virtually every other aspect of the bilateral relationship. Over the years, the United States has accumulated a growing trade deficit in goods and services with India, reaching more than $45 billion in 2022. India’s high barriers to trade led Trump to label the country the “ king ” of tariffs. Indeed, Indian Prime Minister Narendra Modi has used high tariffs to protect domestic industries, attract foreign investment, and promote his “ Make in India ” policy. Ignore the conventional wisdom in Washington and New Delhi that the U.S.-India trade relationship is likely to deteriorate during U.S. President Donald Trump’s second term: The two countries in fact have a huge opportunity to expand trade and a realistic path forward for doing so. Trending Articles Has Technology Really Revolutionized Modern Warfare? How war in the 21st century has—and hasn’t—changed. Powered By Advertisement Has Technology Really Revolutionized Modern Warfare? X Trump’s Second Term Ongoing reports and analysis Though U.S.-India economic ties have grown steadily in the 21st century, this cooperation has underperformed relative to the extraordinary advances in virtually every other aspect of the bilateral relationship. Over the years, the United States has accumulated a growing trade deficit in goods and services with India, reaching more than $45 billion in 2022. India’s high barriers to trade led Trump to label the country the “ king ” of tariffs. Indeed, Indian Prime Minister Narendra Modi has used high tariffs to protect domestic industries, attract foreign investment, and promote his “ Make in India ” policy. As Trump proclaims his own fondness for tariffs , skepticism has set in among U.S.-India experts about the prospects for bilateral trade. Trump has promised to impose a 10 to 20 percent tariff on all imports and to hit a select group of countries—including India—with even higher tariffs. If he goes forward with this pledge, some might respond with retaliatory tariffs. These circumstances might make one question whether the United States and India can negotiate a substantial trade agreement—something that they have never done before—in Trump’s second term . Yet there are reasons to be optimistic. Trump loves the art of the deal and would like to improve the U.S. economy. His tariffs may well be designed as leverage to open foreign markets for U.S. companies, thereby creating U.S. jobs related to exports and lowering bilateral trade deficits. Modi is a strategic thinker who is focused on growing India’s economy and expanding its role in the world. The United States and India both want to enhance their economic influence in the Indo-Pacific region and blunt China’s economic primacy. The time is ripe and the incentives are in place for these two leaders to beat the odds and make a major deal. Early in Trump’s first term, when one of us served as the U.S. ambassador to India and the other as assistant U.S. trade representative for South and Central Asia, the United States put on the table its willingness to negotiate a broad trade agreement with India. While U.S. officials thought that the Indian government had signaled general interest in such an agreement, there did not seem to be the concrete follow-through in terms of the mutual concessions required to conclude any such large deal. Over time, the necessary trade-offs by each side did not materialize, and the two parties were not even able to negotiate a smaller deal that would maintain India’s benefits under the U.S. trade program known as the Generalized System of Preferences (GSP), created by Congress in 1974 to spur U.S. ties with developing countries. The GSP eliminates tariffs on hundreds of products imported from countries such as India, with the requirement that the beneficiary country provide adequate market access for U.S. products. The mechanics of U.S.-India negotiations on the GSP were put into motion in 2017, after the U.S. medical devices and dairy industries filed petitions about India’s restricted market access with the Office of the U.S. Trade Representative (USTR). USTR subsequently undertook a review of these sectors and widened it to goods across other sectors, including IT products. Negotiations on a trade agreement continued into early 2019, but the parties’ efforts were unsuccessful, and USTR had no choice but to end India’s GSP benefits in March 2019. Even after USTR determined that India no longer qualified for the GSP, the two sides continued to negotiate what was termed a “small” trade deal to try to restore the program for India. When Trump traveled to the country in February 2020, Indian officials finally signaled that they might be willing to conclude such an agreement. By that time, however, Trump was in the final year of his first term and wanted either a big deal or no deal—which resulted in the latter. The two countries have since focused on minor fixes to trade irritants and sidelined ambitions for a groundbreaking agreement, even as the value of bilateral trade grows and the overall bilateral relationship deepens. This should be understood in a broader context: Under former President Joe Biden, the United States was unwilling to offer any country further access to its market and did not enter into any substantial new trade agreements. Instead, the Biden administration sought to develop a different model for trade negotiations that addressed concerns over the impact of market openings on U.S. workers and what it saw as new rules for the 21st-century economy. It was against this backdrop that the United States rebuffed India’s new interest in exploring a U.S.-India free trade agreement early in Biden’s term. Modi’s government also declined to participate in one of the four pillars of Biden’s Indo-Pacific Economic Framework for Prosperity (IPEF). The IPEF focused on nonbinding commitments among 14 countries on supply chain resilience; clean energy, decarbonization, and infrastructure; tax and anti-corruption measures; and selected trade issues, not including market access. India participated in negotiations on the first three pillars, which resulted in agreements on principles and cooperative mechanisms. The trade pillar, which included all countries but India, failed to produce any consensus. India recently signed a flurry of targeted free trade deals with other countries, including Australia, the United Arab Emirates, and the EFTA states (Iceland, Liechtenstein, Norway, and Switzerland). But India still has never locked in the benefits of preferential trade in goods and services with its largest and most significant partner, the United States. The Biden administration resolved seven outstanding disputes in the World Trade Organization (WTO) with India, but the idea of a bigger trade deal between the two countries never got off the ground. Trump and Modi should now be ambitious and seek to negotiate a significant trade and economic arrangement. The new Trump administration will be laser-focused on lowering India’s trade barriers in a variety of sectors, including the ongoing concerns in the medical devices, agriculture, and IT sectors. For its part, India will want to secure continued growth in bilateral trade in goods and services and restore GSP benefits, if Congress reauthorizes the program, which expired at the end of 2020. Sign up for Editors’ Picks A curated selection of FP’s must-read stories. Sign Up By submitting your email, you agree to the Privacy Policy and Terms of Use and to receive email correspondence from us. You may opt out at any time. Enter your email Sign Up ✓ Signed Up You’re on the list! More ways to stay updated on global news: FP Live Enter your email Sign Up ✓ Signed Up World Brief Enter your email Sign Up ✓ Signed Up China Brief Enter your email Sign Up ✓ Signed Up South Asia Brief Enter your email Sign Up ✓ Signed Up Situation Report Enter your email Sign Up ✓ Signed Up View All Newsletters Once the Trump tariffs (and possible Modi retaliatory tariffs) go into effect, the United States and India should view this as only the beginning of the trade and economic dialogue. Both leaders and their advisors should see the logic of aspiring to conclude a broader deal. After all, Trump and Modi are drawn to high-profile initiatives and prefer bilateral deals to multilateral ones. In short, neither leader is averse to thinking big. Trump showed during his first term that he is willing to sign trade deals, as he did with Canada, the European Union, Japan, and Mexico—and even in an initial phase with China, though its objectives were not realized . The negotiation of a GSP agreement with India was one of the few trade priorities for which Trump was not able to cross the finish line. Some of Modi’s initiatives have also been bold, such as his overtures to Pakistan early in his first term. Moreover, Modi’s trade negotiating agenda with other countries is unprecedented for India. The current political climate in Washington and New Delhi, including a focus on promoting domestic manufacturing, would almost certainly not support negotiating a full-blown free trade agreement. However, the U.S.-Japan Trade Agreement (USJTA) negotiated under the first Trump administration in 2019 could provide a compelling model. The USJTA is not a free trade agreement, but it has some key features of one, particularly involving tariff cuts in several sectors on both sides. Normally, any preferential tariff arrangements violate the WTO’s requirement that trade between members must be conducted on a nondiscriminatory or “most favored nation” basis, unless these arrangements are formulated as large-scale free trade agreements. Yet such deals can be cumbersome and difficult to negotiate. First, WTO rules require that free trade agreements cover “substantially all trade,” which can make it difficult for trading partners to exclude their most sensitive sectors from tariff cuts. Second, U.S. negotiators require special trade negotiating authority from Congress before they can submit a free trade agreement for an up-or-down vote by both houses. This means that there cannot be amendments to the terms already negotiated with a trading partner by the executive branch. Congressional votes on free trade agreements are rarely straightforward. Furthermore, utilizing trade negotiating authority from Congress is the only practical way to obtain the legislature’s approval for a comprehensive trade agreement—yet that authority expired in 2020. While the USJTA included tariff concessions on both sides, the first Trump administration chose not to submit the agreement for congressional approval or notify the WTO. At the time, this raised some concerns among lawmakers that it was an end-around of congressional oversight, and there were questions about whether the USJTA violated WTO rules. Nevertheless, the agreement has endured and, in some respects, cemented the economic component of the broader U.S.-Japan strategic partnership. It even includes a groundbreaking side agreement on digital trade, which highlighted that nearly all sectors rely on the digital exchange of information and digital transactions. A U.S.-India deal could certainly follow the USJTA model. The natural starting point would be to address most of the issues that the parties left on the table during Trump’s first term, when they came close to reaching an agreement. Such a deal now would require substantial tariff reductions by New Delhi because it has much higher tariff rates than Washington; Trump believes in some degree of reciprocity. But this market liberalization would solidify India’s economic relationship with the United States and enhance its prospects for becoming a supply chain hub. Read More U.S. President Donald Trump (center) is sitting down while he holds up an executive order. To his left is Vice President J.D. Vance. How to Read Trump’s Day-One Trade Actions He didn’t drop the bombshell, he just primed the fuse. Analysis | Keith Johnson Chinese Vice Premier Liu He shakes hands with U.S. President Donald Trump in the White House’s Oval Office. To the left are several people sitting or taking photos. How Trump Could Strike a Trade Deal With China A Phase Two negotiation isn’t out of the question. Washington must get it right this time. Argument | Wendy Cutler An illustrations shows the silhouette of Donald Trump with a face filled with pricetags. Trump Is Ushering In a More Transactional World Countries and companies with clout might thrive. The rest, not so much. Essay | Ravi Agrawal To make tariff reductions more palatable, Trump and Modi could broaden their horizons to areas that would provide growth potential for both countries. The United States has a long history of negotiating new areas in its trade agreements. These initially included provisions related to labor and the environment, but trade agreements have become increasingly robust—expanding to include trade capacity building, state-owned enterprises, and good regulatory practices, among others. There are significant and often complementary elements of the U.S.-India economic relationship that could provide benefits in a major bilateral agreement. For example, the United States is India’s largest trading partner, in part because of the substantial Indian services provided to U.S. companies that outsource their IT development and data processing needs. During the COVID-19 pandemic, Indian companies were critical in maintaining the back-office operations of many aspects of the U.S. financial and medical sectors. Indian services companies (as well as U.S. technology companies) also seek H-1B visas for highly skilled Indian engineers to work in the IT sector in the United States—though this need has lessened a bit with more than 1,000 U.S. companies now having Global Capability Centers in India. Nevertheless, there would be mutual benefits to an arrangement that addresses concerns regarding the flow of data and labor mobility in the services sector and ensures the continued success of this business model. The technology ties between the United States and India have grown by leaps and bounds in the last 20 years. The recent Initiative on Critical and Emerging Technology (iCET), led by both countries’ national security advisors, is designed to advance the technology relationship and defense industrial cooperation. The iCET (or a rebranded version of it) should further the U.S.-India strategic partnership by fostering an ecosystem among governments, businesses, and academic institutions to advance joint development of cutting-edge technologies. Under this technology initiative, India requires increased access to sensitive and regulated U.S. dual-use technologies for cooperative work with the United States in semiconductors, space-related technology, clean energy products, artificial intelligence, quantum computing, and biotechnology, among other areas. The U.S. government sees India’s development in these sectors as beneficial to U.S. economic needs and interests and to strengthening India’s capabilities and economy. Though there has been enormous progress over the years in streamlining the U.S. licensing process for dual-use technologies, it still has burdensome aspects. A U.S.-India trade arrangement could seek to reduce this export-control red tape while addressing related security concerns and establishing standard-setting mechanisms for the design and development of critical technologies. As two of the leading countries in the IT sector, the United States and India should also have a mutual interest in developing common standards for the digital economy rather than letting other major players, such as China, set those standards. Energy supply and security is another critical need for India and a market opportunity for the United States. India is one of the world’s largest energy importers, and the new Trump administration will almost certainly support all forms of India’s energy needs, including oil, liquefied natural gas, clean coal, and advancements in renewables and nuclear power. A potential agreement should seek to support key elements of these interactions—regarding U.S. exports and India’s security of supply—while possibly addressing U.S. concerns about the high volume of Indian oil imports from Russia. Similarly, in health care, India and the United States have complementary capabilities and needs. The United States is a leader in developing vaccines and pharmaceutical products, while India is a leader in manufacturing them. Trump and Modi share an interest in keeping drugs accessible and affordable. Moreover, India seeks to become a critical supply chain alternative to China in the pharmaceutical sector and reduce its own dependency on China, which the United States supports. Related to each of these areas is the interest in facilitating further bilateral investments. There is already a substantial amount of U.S. investment in India and now a developing flow of Indian acquisitions and greenfield investments in the United States. Any economic agreement should lower barriers not only to trade but also to investments, especially encouraging increased levels of Indian investment in the United States, thereby creating more jobs for Americans. The elements now exist for a significant deal between the United States and India. Such a deal can lock in the mutual benefits of the economic relationship, provide greater assurance and predictability to parties in both countries, and enable India to fill some of the void created by higher U.S. tariffs on Chinese imports. But the deal cannot be left solely to the bureaucracies in each country, which have a long history of meaningful engagement but unsuccessful efforts to resolve the most challenging bilateral trade policy disagreements. The bureaucracies lack the political clout to overcome the inevitable domestic resistance to market-opening measures and the need to make difficult political trade-offs. Any deal will require each side to make concessions with the type of give and take that only Trump and Modi can provide—if they have the ambition to make the deal. There is another important imperative that should push Trump and Modi to strike a deal this time. Any agreement would provide not only economic growth opportunities but also a strategic benefit. Chinese President Xi Jinping’s major source of influence in the Indo-Pacific is Beijing’s economic clout. The United States and India need to work together to counterbalance China’s dominant economic presence in the region. China is the major trading partner of nearly every country in the region and an integral part of the Indo-Pacific trade architecture through the Regional Comprehensive Economic Partnership (RCEP), an agreement among 15 countries representing approximately 30 percent of global GDP. China has also applied for membership in the high-standards, 12-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Neither India nor the United States is a party to these two regional agreements. India withdrew from RCEP negotiations during its final stages in 2019, concerned that the agreement would lead to a flood of imports from China. The United States withdrew from the CPTPP’s predecessor, the Trans-Pacific Partnership, at the outset of Trump’s first term. An initial step for the United States and India in challenging China’s dominant trade influence in the region is for the two countries to strike their own economic arrangement by resolving long-standing trade and investment issues and locking in cooperation in critical and emerging technologies, energy, and health care. The United States would benefit from increased market access in India; New Delhi would benefit by strengthening its economic ties with Washington, its leading trade partner, and boosting its appeal as an alternative supply chain hub for those looking to diversify away from Beijing. The United States and India would still need to increase their levels of trade, investment, and assistance with other countries in the Indo-Pacific to compete more effectively with China. But now is the time for Trump, Modi, and their respective teams to raise their ambitions, sit down at the negotiating table, and seize the opportunity to reinforce their strategic partnership by elevating the economic relationship to a new level. This post is part of FP’s ongoing coverage of the Trump administration . Follow along here . My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In Foreign & Public Diplomacy Economics United States China India Kenneth I. Juster is a distinguished fellow at the Council on Foreign Relations. He served as the U.S. ambassador to India from 2017 to 2021. Mark Linscott is a senior advisor at the U.S.-India Strategic Partnership Forum and the Asia Group. He served as the U.S. assistant trade representative for South and Central Asian affairs from 2016 to 2018. 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