India-US Trade Talks: Limits of Strategic Convergence

The inability of negotiators from the two sides to conclude a quick trade deal over differences on agriculture, dairy, and tariffs, underlines the persistent structural and political mismatches in red lines and wish-lists drawn up by the world’s largest democracy and the most powerful one.

While the Trump administration continues to push for greater market access, the Indian government refuses to concede on issues it sees as fundamental to its political economy and national identity.

The result: A return of the Indian team last week without the conclusion of a trade deal that had already been announced by President Donald Trump, much to the discomfort of both nations’ business communities.

In a year marked by rising geopolitical cooperation — from semiconductor deals to defence technology transfers — the inability to advance even a limited trade pact speaks volumes. It reflects not just technical disagreement, but a deeper misalignment in economic worldviews, strategic priorities, and domestic compulsions.

India's Agrarian Wall

India has made it abundantly clear that agriculture and dairy are non-negotiables. These red lines aren’t arbitrary. They are rooted in the centrality of rural India to the country’s economic stability, political equilibrium, and national identity.

Agriculture may contribute only 16 per cent to India’s GDP, but it supports nearly half the population — roughly 700 million people. Most of India’s farmers cultivate tiny plots, averaging just over one hectare, a sharp contrast to the industrial-scale, heavily subsidised US agribusinesses.

Politically, those who depend on farming constitute a large chunk of the votes that brought the ruling NDA to power. And their revolt earlier this decade had been the only serious threat to the stability of the central government in Delhi.

For Indian negotiators, the idea of opening domestic markets to US farm goods — without serious adjustment mechanisms — is a political and developmental minefield. While it can look at allowing American pistachios, fruits and nuts, high-end cheese and other exotic foods for the rich and upper middle classes, allowing American wheat, corn or rice — which are India’s basic dietary requirements, and which are staples produced by 100s of millions of India’s farmers — duty free would be a non-starter.

It risks not only economic displacement but massive agrarian unrest. The memory of the farmers’ protests against planned farm sector reforms in 2020-21 and in 2024 still haunts the political establishment.

Similar concerns beset the dairy sector. India’s dairy economy is hyper-local: Millions of smallholders tend 2-3 animals each, bonding together to take their produce to the market through village cooperatives. Introducing large-scale US dairy imports into this delicate ecosystem would amount to economic shock therapy — with political fallouts.

Where Did The Talks Go?

The collapse of the trade talks lies in Washington’s insistence on a trade agreement based on tariff reciprocity that overlooks the asymmetries defining the bilateral relationship. The Trump administration demanded lower Indian tariffs and removal of non-tariff barriers on a broad range of goods: Agricultural products, ethanol, automobiles, medical devices, and pharmaceuticals. India, for its part, asked for relief from steel and aluminum tariffs, concessions on auto parts, and a rollback of retaliatory duties.

However, the larger divide lay in the logic underpinning each side’s demands. The Americans framed their position around market liberalisation; while India crafted its position around social stability and sovereignty.

While American negotiators viewed Indian tariffs as protectionist vestiges of a bygone Socialist era, Indian officials saw them as necessary shields against the destabilising effects of subsidised imports.

Indian negotiators are ready to accept deep tariff cuts on high-end automobiles, electronic medical devices, and a host of high-end US farm products, besides greater market access for defence products, and more purchases of US crude oil. However, they will not budge on staples like corn, wheat and rice, or for that matter, most milk products.

They fear that if the US floods the Indian market with hugely subsidised produce, its farmers, who get token subsidies in the form of cheaper fertilisers and PM-Kisan Yojana benefits, will not be able to withstand the competition.

Small Farmer, Big Vote

What Washington underestimates — and what New Delhi cannot ignore — is the sheer political power of the small farmer. With crucial state elections looming ahead and the scars of previous farmer protests still fresh, no Indian government can afford to be seen as sacrificing agrarian interests at the altar of free trade, even with a friend and ally like the US.

This isn’t just about economics. It’s about the rural political economy, electoral arithmetic, and even political survival.

The Way Forward

To date, Trump's negotiators have not been able to strike deals with many countries. Negotiations are still on with many major partners, including the EU. This is evident from Treasury Secretary Scott Bessent’s announcement that the US will start sending out letters on tariff hikes that will be effective from August 1.

Both India and the US have time to make adjustments, and will possibly hammer out a deal by adding more sweeteners from the basket of things the US wants to sell — crude oil, defence equipment, farm produce, automotive products — and more control over rare earth supplies.

For samplers — India’s defence acquisition committee has finalised major capital acquisitions worth US$ 12.21 billion last week, most of which will be supplied by joint ventures that are likely to go to US-led consortia.