India-US trade tensions: Can Modi navigate Trump’s tariff ultimatum?

Department of Research and Strategic Studies and International Relation 22-04-2025

As United States Vice President JD Vance embarks on his first official trip to India, trade relations between the two nations hang in a delicate balance. His visit, marked by ceremonial gestures from Indian Prime Minister Narendra Modi, comes at a time of rising uncertainty over Washington’s trade policies, especially amid renewed tariff threats from President Donald Trump.

Since Trump’s return to the White House earlier this year, he has revived his aggressive stance on trade, placing India under pressure to reduce tariffs on American imports. Although a temporary 90-day reprieve has delayed the imposition of steep tariffs, excluding China, for now, Indian exports still face a 10% levy, and a 26% hike remains on the table if negotiations falter by the July 8 deadline.

India’s long-standing use of high tariffs, particularly to shield its vast agricultural sector, is now a focal point in discussions. Nearly half of India’s population depends on farming, and any reduction in protective tariffs could expose local markets to an influx of subsidized foreign goods, potentially destabilizing rural livelihoods.

Protests have already erupted across Indian villages. Farmers’ unions, including the influential All India Kisan Sabha, have publicly denounced the visit, accusing the Modi administration of prioritizing foreign relations over domestic welfare. These demonstrations highlight the political cost Modi may face if trade talks lead to concessions in agriculture.

Despite these tensions, both governments continue to push forward with negotiations on a bilateral trade deal. According to official statements, Modi and Vance held constructive talks and reviewed progress on expanding cooperation in sectors such as energy, defense, and technology. However, specific details on tariff discussions remain behind closed doors.

The stakes are high. The US remains India’s top trading partner, with bilateral trade reaching $129.2 billion in 2024. Indian exports, ranging from pharmaceuticals and electronics to textiles and precious stones, have found a substantial market in the US, totaling $87.4 billion. In contrast, US exports to India, worth $41.8 billion, include refined fuels, medical instruments, and high-value goods like pearls and machinery.

Yet the imbalance in tariff policies is a sticking point. India’s average tariff rate stands at 17%, compared to just 3.3% in the US. In agriculture, this gap is even wider: India’s import duties average 39%, while US rates are around 4%. While India has recently reduced tariffs on select luxury items such as high-end alcohol and motorcycles, core sectors remain heavily protected.

Trump, known for his blunt rhetoric, has accused India of abusing the global trade system and insists that the country’s high tariffs unfairly disadvantage American exporters. Indian economists and diplomats caution that any major trade agreement must balance national interests, especially in sensitive sectors like agriculture.

As the July deadline looms, New Delhi faces a challenging path, one that requires careful diplomacy, transparency, and a firm defense of its domestic priorities. Any missteps could have significant economic and political consequences, particularly in a nation where millions rely on farming for survival.