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The impending trade negotiations between India and the United States are poised to place significant pressure on India to reduce tariffs on agricultural products. Washington, D.C., driven by the interests of its agricultural sector, is particularly keen on expanding its exports of agricultural goods to India. This push for tariff reduction in a sector traditionally characterized by high protectionism in India is expected to be a key point of contention in the upcoming discussions. The emphasis on agricultural exports stems from the political importance of the American farming community, a vital voter base for Donald Trump, who has consistently sought to bolster US exports across various sectors. The new administration views increasing agricultural exports as an “offensive interest” within the broader trade framework, aiming to capitalize on India's substantial market potential. This stance underscores the strategic significance of agricultural trade in the overall bilateral relationship and the potential for considerable gains for US producers if India agrees to lower its tariff barriers.
Early signals from Washington suggest that the Trump administration will vigorously advocate for tariff reductions on agricultural goods during the negotiations. The American farming community, particularly in the mid-Western states, has been a crucial demographic for Trump since his initial presidential campaign in 2016. Their continued support was evident in the recent election, where Trump significantly increased his vote share in farming-dependent counties, securing over 80% of the vote in more than 100 of these areas. This strong backing underscores the administration's commitment to addressing the concerns and priorities of American farmers, making agricultural trade a central element of their trade agenda. By prioritizing agricultural exports, the administration aims to reward its loyal voter base and demonstrate its dedication to promoting American economic interests on the global stage.
Despite recent reductions in basic customs duties on certain items in the Union Budget, the White House has publicly criticized India's agricultural tariffs as being significantly higher compared to those imposed by the US on Indian products. According to the White House, the average applied Most Favored Nation (MFN) tariff on agricultural goods in the US is 5%, while India's average applied MFN tariff stands at 39%. This substantial difference highlights the existing trade imbalance and forms the basis for the US argument that India's protectionist measures impede the free flow of agricultural goods between the two countries. The US is likely to use this disparity as leverage during the negotiations, pressing India to level the playing field and provide more equitable access to its agricultural market.
However, Indian government officials express optimism that reducing tariffs on agricultural goods could lead to an overall increase in agricultural trade between the two nations. They believe that lowering tariffs could potentially improve market access for Indian agricultural exports to the US. Currently, India primarily exports basmati rice, spices, cereals, dairy, and poultry products to the US. The government anticipates that a more liberalized trade environment could unlock new opportunities for growth in these and other agricultural sectors. An official stated that both sides are exploring ways to expand trade in agricultural items, emphasizing that India currently exports approximately $4 million worth of agricultural products to the US annually, with significant potential for further expansion. This perspective underscores the potential benefits for both countries from a more balanced and open agricultural trade relationship.
India's agricultural sector has historically enjoyed a high level of protection, remaining largely insulated from trade agreements, even with countries that typically insist on market access for agriculture, such as Australia. This protectionist stance has made the sector vulnerable to potential reciprocal tariffs that the US is planning to introduce. Trade experts have noted that the high tariffs on Indian agricultural goods could trigger retaliatory measures from the US, potentially harming India's export competitiveness. The Global Trade Research Initiative (GTRI) has warned that the hardest-hit sector due to US reciprocal tariffs will be fish, meat, and processed seafood, with $2.58 billion in exports facing a substantial 27.83% tariff differential. This underscores the potential economic consequences of the US's trade policy and the need for India to carefully consider its position during the negotiations.
The GTRI further elaborated on the potential impact of US reciprocal tariffs on various agricultural products. Shrimp, a major export commodity, is expected to become significantly less competitive in the US market. Processed food, sugar, and cocoa exports, valued at $1.03 billion, are also projected to face challenges due to a 24.99% tariff increase, making Indian snacks and confectionery more expensive for American consumers. Edible oils, with $199.75 million in exports, could see a 10.67% tariff increase, raising costs for coconut and mustard oil. Alcohol, wines, and spirits face the highest tariff hike at 122.10%, although their export value is relatively small at $19.20 million. Live animals and animal products face a 27.75% tariff differential on $10.31 million in exports. Interestingly, tobacco and cigarettes, valued at $94.62 million, are expected to remain unaffected, as the US already imposes high tariffs of 201.15%, creating a negative tariff differential of -168.15%. This detailed analysis highlights the uneven impact of potential US tariffs across different agricultural sub-sectors.
The US has a history of prioritizing agricultural exports in its trade agreements, as demonstrated by the United States–Mexico–Canada Agreement (USMCA) and the US-China trade deal. The USMCA, which replaced NAFTA, aimed to improve market access for US agricultural products in North America. According to the US Department of Agriculture (USDA), the new deal expanded opportunities for US dairy producers by granting them increased access to the Canadian market. Canada agreed to eliminate its Class 6 and 7 milk pricing programs, which had previously allowed Canadian producers to undercut US dairy prices. The USMCA also addressed issues related to wheat trade by requiring Canada to terminate its discriminatory wheat grading system, enabling US wheat growers to compete more effectively in the Canadian market. These provisions underscore the US's commitment to securing favorable terms for its agricultural sector in its trade agreements.
The US-China trade deal, signed during Trump’s first term, also included provisions aimed at boosting US agricultural exports to China. A US Trade Representative (USTR) statement indicated that China was required to import certain US agricultural products worth at least $12.5 billion above the corresponding 2017 baseline amount in calendar year 2020 and no less than $19.5 billion above the corresponding 2017 baseline amount in calendar year 2021. The deal also required China to remove certain non-tariff barriers that had previously blocked US exports, such as eliminating “cattle age” requirements for US beef imports. These examples demonstrate the US's proactive approach to using trade agreements to promote its agricultural interests and secure market access for its products in key global markets. India can anticipate similar demands from the US during the upcoming trade negotiations, requiring a careful assessment of its own agricultural priorities and strategic goals.
Source: India to face US pressure to reduce tariffs on agri products in trade deal negotiations