Trump-Modi: More Oil, Tariff Cuts & Arms Purchases Promised

The high profile meeting as expected earlier (See The Secretariat’s Trump-Modi: More Tariff Cuts, More Oil, Defence Purchases), offered a roadmap which included more tariff cuts by India, increased oil and gas purchases and possible purchase of USA’s fifth generation F-35 aircraft.

However, the “summit” did not produce any announcement for an immediate deal. Officials said both the mini-trade deal that India was offering, and the 'limited agreement' — which US officials wanted to model on the US-Japan Trade Agreement — would take months to finalise.

Nonetheless, the optics in Washington were great for both. Trump called Modi “a great friend of mine”, as the duo bear-hugged each other — though the US President, who had already signed an executive order hours before threatening “reciprocal” tariffs on US trading partners — warned that India won’t be spared from higher tariffs.

Geopolitics, Oil, Arms & Nuclear Ambitions

On the geo-political front, the two agreed on efforts to “eliminate cross-border terrorism”, with Trump very pointedly stating in answer to a question, "I am leaving the Bangladesh issue to PM Modi" to resolve.

This came in the backdrop of the US President pledging to extradite Chicago businessman Tahawwur Rana, who is accused of participating in the 2008 Mumbai attacks and a rise in incidents of mob violence and Islamic terrorism in neighbouring Bangladesh.

"They're going to be purchasing a lot of our oil and gas. They need it. And we have it," Trump told newspersons in Washington. The US President also indicated he would increase sales of military hardware to India, including the fifth generation F-35 fighter jets, purchase of which has been held up because of American reluctance to part with technology or relax norms on its usage.

Both leaders agreed to expand security cooperation in the Indo Pacific, a thinly veiled reference to concerns about China’s stance in the region where it has built a string of strategic ports and has claimed sovereign rights over the South China Sea.

Even as the two leaders met, a Naval flotilla from the US joined hands with Japan — another member of the Quad of which India is a founding member — with those from France, to patrol South China Sea off the coast of the Philippines.

India and the US also agreed to start joint production on technologies like AI and nuclear energy. Long-stymied plans to set up nuclear power plants by General Electric (GE) and Westinghouse, as well as future plans for the development of privately-run small nuclear reactors, are believed to have been discussed during the trip.

India has already indicated it will amend its liability law to boost foreign investments in its civilian nuclear energy sector. 

Crude oil and LNG imports from America were worth about US$ 6.5 billion in 2023-24, or about 15.5 per cent of its total oil and gas imports in 2023-24 that were valued at over US$ 42 billion. This figure is now expected to go up — at the cost of imports from Russia — as a result of the ongoing visit.

Russian oil accounted for about 30 per cent of India's imports in 2023-24, though it has come down to 25 per cent of imports in the first nine months of the current financial year. India became the top buyer of Russian oil sold at a discount because of sanctions in the wake of the Ukraine-Russia war.

The US has already indicated it wants India to buy more defence equipment from it as against its traditional arms supplier Russia. Deals that have been negotiated or are in the pipeline include the MH-60R Seahawk helicopters (US$ 2.8 billion), Apache helicopters (US$ 796 million) and the Large Aircraft Infrared Countermeasure (US$ 189 million), as also the purchase of 31 MQ-9B Predator drones worth US$ 3.3 billion.

Trade & Tariff On Their Minds

In a manner reminiscent of American Naval Commodore Matthew Calbraith Perry’s strong-arm tactics, which forced Japan to open up to trade with the US in mid-19th century, Trump has been using tariffs — or rather the threat of using tariffs — as a weapon to force both friends and foes to give trade concessions and buy more from the US.

The Indo-US goods and services trade totalled around US$ 190.1 billion in 2023, with the U.S. suffering a US $45.6 billion trade deficit. The Americans have long been complaining of high tariffs charged by the Indians.

While, the US trade-weighted average tariff rate is about 2.2 per cent, India's is 11 per cent, after considerable slashing of tariffs and tariff rates in the annual budget announced earlier this month.

“I had discussions with India in the first term about the fact that their tariffs were very high, and I was unable to get a concession,” Trump said, adding “ So we’re just going to do it the easy way. And we’re just going to say: ‘Whatever you charge, we charge’.”

The US President on Thursday signed an executive order asking his officials to determine "the equivalent of a reciprocal tariff with respect to each foreign trading partner." Trump has already slapped a 10 per cent duty on imports from China.

He has also rolled back threatened tariff imposts against neighbours Mexico and Canada, after getting them to agree to border control measures, and is now publicly contemplating trade measures against the European Union.

India has already slashed its top-end basic tariff rate which stood at 125 per cent to 70 per cent, and its average tariff rate to 11 per cent in the Union Budget, announced at the beginning of this month. A large number of life-saving drugs were also exempted from tariff, a move which should please big US pharmaceutical companies who funded the Trump campaign. 

Similarly, machinery needed for EV manufacturing and mobile phone battery factories, have also been exempted from customs duties. The cuts announced in the annual Budget is expected to help Harley Davidson sell its iconic motorcycles at a lower price in the vast Indian market, among other things.

Officials said India is also now looking at cutting import tariffs on multiple product lines, the number of which could vary between a dozen to a score, and include electronics, medical equipment, chemicals and luxury cars. India may also do away with a levy — the Agriculture Infrastructure Development Cess — imposed on a number of imports, including material building blocs for semiconductors, heavy machinery, solar cells and luxury cars and motorcycles.

Agricultural products are also on Trump's agenda and his officials have demanded more concessions. Till 2023, there was a 100 per cent import duty on these, before it was brought down to 30 per cent. Indians are believed to be willing to lower duties to up to zero on a number of fruits, nuts and other farm produce which India in any case buys from the US.

The other big issue which Trump has raised and which India has promised to hep out on, is undocumented migration. India is keen to protect H-1B visas, which allow Indian firms to bodyshop software professionals to the US, and is willing to help take back identified undocumented Indians. A first planeload of such returnees made its way to Punjab recently in a US military aircraft.

Some 12,000-18,000 more are likely to be sent back soon, though India wants them to be sent via normal civilian flights. There are estimates that there are another half a million Indians without valid visas or travel documents in the US.

This is however merely an estimate and India will obviously check whether those that the US administration wishes to push back are indeed Indians, especially in view of fears that a spiral of terrorism is likely to strike in the South Asia-Southeast Asia region. A fear, which along with the feared rise of China, has seen India and the US draw strategically closer.