An elusive US deal

India must remain focused on its long-term interests

Union Finance Minister Nirmala Sitharaman on Monday noted that negotiations on the trade deal with the United States (US) had reached a plateau, where further concessions from either side would be difficult. Ms Sitharaman’s assessment of the situation looks more convincing than  previous statements from both sides emphasising that the deal was almost done. It is also worth recalling that US Trade Representative Jamieson Greer noted last week that both sides had identified the sticking points, but the deal was not imminent. To be fair, negotiating a trade agreement between two large economies at very different levels of development is not easy and would naturally take some time. What makes it urgent is the nature of the administration in Washington.

 

US President Donald Trump sees the trade deficit with individual countries as a problem and a result of unfair treatment. This was the driving force behind the so-called reciprocal tariffs, imposed on most trading partners last year. It was struck down by the US Supreme Court this year. Subsequently, the administration imposed temporary tariffs and launched investigations under Section 301 of the US Trade Act, 1974. With the conclusion of one of the investigations, it imposed a tariff of 10 per cent on India and others on the pretext of the presence of forced labour in supply chains. Some countries are facing a 12.5 per cent tariff under the same provision. The other investigation on excess industrial capacity is still underway. The broad understanding is that the idea is to take the tariff levels close to the reciprocal rate. In theory, a trade deal before the next round of tariffs is announced would have placed India in a comparatively good position. However, it appears that it may not happen in a hurry. As has been hinted, it is likely that the US is looking at its trade deficit with India and aiming to reduce it to the extent possible. India had a trade surplus of about $34 billion in 2025-26.

 

This is a difficult negotiating position. India also runs a current-account deficit (CAD), which means it buys more goods and services from the rest of the world than it sells. It so happens that it runs a surplus with the US and a deficit with other countries as a whole. Reducing the surplus with the US would mean that India would have to shift imports from other parts of the world to the US. This may not be efficient, and the US may not be in a position to supply all that India needs. Notably, the US’ trade deficit in goods with China in 2025 was over $200 billion. Although it was substantially lower than in the previous year, it has been argued that goods were rerouted through other countries. Interestingly, despite tariffs, the US trade deficit in goods in 2025 increased to over $1.2 trillion. It would be worth watching how the Trump administration cuts this level of deficit. Given the US fiscal position and growing investment demand in the private sector, the US trade deficit and CAD will likely grow in the coming years.

 

Be that as it may, it would be important for India to remain engaged with the US. There is an added complexity for India. The US Congress has empowered Mr Trump to impose additional tariffs on countries importing Russian energy. The US imposed additional tariffs on India last year, which should be avoided now. It is important to note that India’s relations with the US go much beyond trade, which the current transactional administration in Washington is unwilling to appreciate. However, India must remain mindful of its long-term interests.