Waiting for India-US deal: The trade outlook remains uncertain amid delays

Even with the July 9 deadline just a few days away, it is unclear whether India and the United States (US) will be able to reach a mutually beneficial trade deal within the given timeframe. US President Donald Trump last week said that he had signed letters for about 12 countries with tariff details, which would be sent on Monday.  Mr Trump has also said that tariffs could be much higher — up to 70 per cent — and would be effective from August 1. This could also mean that the US is keeping the door open for negotiation even after the 90-day pause on the so-called reciprocal tariffs ends. In a way, this also reflects the complexity of the situation. The US has not been able to reach trade deals with many countries. Unless the pause is extended, the US administration’s failure to reach agreements even with major trading partners will significantly increase uncertainty in the global economy. 

As far as India is concerned, it remains unclear when a deal could be reached. Indian negotiators are reported to be back in the country, which indicates that India and the US may not cross the finish line by July 9. News reports suggest that the US is seeking greater market access in agricultural commodities, among other areas, which the Indian side is not comfortable with.  Nearly half of India’s population depend directly or indirectly on agriculture for  livelihood. There are also concerns in India about genetically modified food items that the US wants to push. There may be other contentious issues as well. The US-Vietnam deal offers some clues. It is a completely one-sided deal in which Vietnam, according to reports, will import US goods without any tariff, while the US will impose a 20 per cent tariff on Vietnamese goods and 40 per cent on transshipments. The deal has turned global trade conventions and accepted norms on their head, with the world’s largest economy by far seeking to protect its market from a relatively small and developing economy and getting duty-free entry for its goods. India, with its complexities and a significantly larger economy, is unlikely to accept such terms, which perhaps explains the delay. 

Given that not much progress has been made by the US over the past three months or so, what the new global trade order will look like remains unclear. However, what is clear is that the US will have much higher tariffs, and the friction in global trade would increase substantially. Although it is to be hoped that India and the US will arrive at a mutually beneficial trade agreement soon, India must seek deeper engagement with other trading partners. This is necessary not only because of what the US is doing but also the approach adopted by China, which is using its dominance in manufacturing and trade to achieve other objectives. China recently, for example, recalled some of its engineers working in the Indian mobile manufacturing space, a move clearly aimed at disrupting the rapid expansion in India in the sector. 

Therefore, in the given circumstances, India should not only focus on developing capabilities within but also engage with like-minded countries to protect the rule-based flow of global trade and investment. To be fair, it will not be easy for India and many other countries to grow at the desired pace in an environment where the US becomes more restrictive and China more assertive, but ways will have to be found to advance engagement and cooperation.