India-USA: A New Transactional Phase

Prime Minister Narendra Modi’s recent visit to the USA to meet his “friend” President Trump is significant for several reasons. He is one of four leaders who has been invited to visit and engage with the Trump 2.0 Administration that is still taking shape, with wide-ranging structural and personnel changes.

Clearly, the Trump Administration has decided that the India-USA strategic partnership is crucial to the changing global order and the challenge that China poses to American global hegemony.

While the optics of PM Modi’s visit were largely positive, there are serious negotiations ahead that will involve banging heads to navigate Trump’s diktat about imposing reciprocal tariff on all countries. India is, therefore, in the target zone.

Trump’s Trump Card 

Trump has been quite upfront on calling out India as a “Tariff King”, because India does impose higher tariff rates than the US on imports. Protectionist policies rarely create a win-win scenario. Retaliatory tariff by trade partners isn’t a sustainable strategy either. Trump’s trump card is the fact that reciprocal tariffs will hurt its large trading partners disproportionately, while not imposing a commensurate cost on the US.

Before the visit, the Indian government announced some tariff concessions on a few American products, like bourbon (American whiskey), whose consumption is not very high in India. India’s effective tariff rate on foreign liquor was around 150 per cent, which has been reduced to 100 per cent. There is thus scope for scaling down tariffs wherever the rates are high.

India has also lowered tariffs, inter alia, on US-manufactured motorcycles, ICT products and metals, and taken measures to enhance market access for medical devices, agricultural products like alfalfa hay and duck meat.

India’s tariff policy adheres to the MFN rule that is predicated on applying the same tariff rates on all countries without discrimination, as per WTO norms. Trump, however, seems determined to trash the MFN norms.

If the MFN norms are to be bypassed, then India and the US will have to get into a bilateral trade deal. Trump has held in abeyance any reciprocal imposition of tariff rates on Indian exports, but this is subject to a bilateral trade agreement being reached later in 2025, as agreed during Modi’s visit.

Reciprocal tariffs are bound to impact adversely on Indian products exported to the USA. However, reciprocal tariffs will also affect prices in the American market, and its consumers. Trump expects American manufacturers to ramp up production in the USA.

The US has already announced non-reciprocal tariffs of 25 per cent on steel and aluminium. There is no clarity in Trump’s policy of applying reciprocal tariffs on individual tariff lines or sectors. These issues will come up in bilateral trade negotiations.  

An ambitious new goal for bilateral trade — "Mission 500” — was also announced to double bilateral trade to US$ 500 billion by 2030. However, if trade ties get bogged down in the reciprocal tariff matrix, then this goal will just be a figure.

As per a White House factsheet dated February 13, “The average Most Favored Nation (MFN) tariff the US has applied on agricultural goods is 5 per cent. But India’s average applied MFN tariff is 39 per cent. India also charges 100 per cent tariff on US motorcycles, while we only charge 2.4 per cent tariff on Indian motorcycles.”

The trade negotiations are likely to focus on these tariffs, but both sides need to be cautious that any trade deal should not end up providing China greater access to the American market.

Migrants, Defence, QUAD 

The other contentious issue is the deportation of illegal Indian nationals who have been under detention. While India has declared that it will accept all Indian nationals, it has reiterated the demand for cracking down on the ecosystem that exploits gullible people for human trafficking.

The return of Indian nationals by US military aircraft has stirred a domestic political controversy. Opposition parties have criticised the shackling of passengers while on board the aircraft, as well as the choice of Amritsar for disembarkation and inability to use civilian aircraft to airlift passengers.  

India has, of course, protested the shackling issue, but the USA has reiterated that this is standard protocol taken for safety reasons in all deportation cases. While the deportation of illegal Indians has provided ammunition for domestic political debate, it must be remembered that India too regularly deports illegal migrants from Bangladesh. 

Defence procurement, related transfer of technology and production in India are likely to witness greater cooperation. Trump offered the 5th generation F-35 fighter aircraft to India on which the Indian Foreign Secretary has said there is no such procurement proposal under consideration of the Indian government.

India may, however, look at co-production of certain items like the Stryker IVC and Javelin Guided Missiles, and add to its inventory of existing American aircraft like the C-130J Super Hercules, the C-17 Globemaster III military transport aircraft, the P-81 Poseidon maritime surveillance aircraft, the CH‑47F Chinook heavy lift helicopters, MH‑60R Seahawks Naval helicopters, AH‑64E Apache attack helicopters, Harpoon anti-ship missiles, M-777 howitzers and MQ‑9B drones.

A 10-year framework for bilateral defence partnership was announced that will come up for signature later in 2025. This framework for bilateral defence partnership would expand defence procurement, sales and co-production.

South Asia, Nuclear Cooperation

Trump’s comment on the situation in Bangladesh during a briefing is indeed interesting. While Trump denied any American role in any regime change operation in Bangladesh, he also seemingly handed over the problem of dealing with the issue to Modi.

Pakistan was stung by the reference to it in the joint statement, wherein it was called upon to punish the names of the perpetrators of the 26/11 Mumbai terrorist attack, and told not to allow its territory for launching terrorist attacks.

Predictably, Islamabad bristled at these references and spoke out against them, blaming India for terrorist attacks and assassinations, and warned that the regional “strategic balance” would be disturbed by the supply of advanced American military hardware to India.

Energy cooperation is also high on Trump’s agenda. He has removed constraints on higher production of oil and gas, making the US the largest producer of oil and gas in the world. India’s diversified procurement of oil and gas has many sources, including the US. It would not be difficult to increase imports from the US, since India imports around 80 per cent of its fossil fuel requirements.

The visit also renewed the commitment to fully implement the US-India 123 Civil Nuclear Agreement by planning to work together to build US-designed nuclear reactors in India through large-scale localisation and possible technology transfer. Nuclear energy is an important aspect of raising the renewable component of India’s energy mix.

Bilateral cooperation in law enforcement has also been upgraded. Both sides have committed to strengthening this aspect of cooperation, and Trump has promised to return more criminals like Pakistani-origin Tahawwur Rana, who was involved in the 26/11 Mumbai attacks, working for the Pakistan’s ISI.

New initiatives, like the US-India COMPACT (Catalysing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century, were also agreed upon. This is intended to expedite and change the whole template of cooperation. Recognising that this level of ambition would require new fair-trade terms, the leaders announced plans to negotiate the first tranche of a mutually-beneficial, multi-sector Bilateral Trade Agreement (BTA) by fall 2025. 

Still A Unipolar World

Trump’s attack on BRICS is a signal that the US establishment is worried about de-dollarisation and the challenge put up by the perceived alternate pole that BRICS could represent. Trump is motivated by the American establishment’s nervousness about a multipolar world, chipping away at its global hegemony that is partly based on the financial hegemony of the US dollar and the global financial system.

The trade portfolio will dominate bilateral ties under the Trump administration. But it would be unwise to let it take centrestage. India has shown strategic flexibility and will have to balance defence procurement, import of oil and gas with trade issues.

It is unlikely that Trump’s negotiators will be inflexible, given strategic objectives in the Indo-Pacific and the US’s need for cooperation in the QUAD. 

(The writer is a former secretary in the Ministry of External Affairs. Views are personal)