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The United States' trade policies, particularly its tariff actions against China, have created a unique window of opportunity for India to solidify its position as a significant global trade partner. As the deadline for a 90-day reprieve from US tariffs looms, India is strategically maneuvering to finalize a Bilateral Trade Agreement (BTA) with Washington. This agreement is viewed by both nations as a potentially transformative event, offering India a 'lifetime' opportunity to enhance its trade relations with the world's largest economy and position itself as a viable alternative to China. The urgency surrounding these negotiations is fueled by President Trump's decision to impose significant levies on Chinese imports, creating a global tariff pause that India hopes to capitalize on before the tariffs potentially resurface. The core challenge for India lies in balancing its domestic priorities, particularly regarding the agricultural sector, with its overarching ambition to become a major player in the global export market. The complexities surrounding agricultural exports, including concerns about genetically modified (GM) crops, require careful consideration and innovative solutions. The US, on the other hand, is motivated by its desire to diversify its sourcing and export destinations amidst its escalating trade conflict with China. The imposition of substantial tariffs on Chinese goods has prompted Washington to actively seek alternative partners who can reliably supply goods and provide new markets for US products. India, with its burgeoning manufacturing sector and its commitment to expanding exports, perfectly fits this profile. The potential for India to become a key supplier to the US is underscored by the fact that China faces US tariffs of 145 percent and has imposed counter-tariffs of 125 percent on US goods. This dynamic creates a significant cost advantage for Indian exporters. According to Ajay Sahai, Director General of the Federation of Indian Export Organisations, the US appears determined to maintain pressure on China. Sahai emphasizes that India stands as a reliable supplier capable of keeping US shelves stocked and prices stable. The 90-day tariff pause provides a crucial timeframe for India to work diligently towards finalizing the BTA with the US, ensuring that it can take full advantage of this strategic opportunity.
India's ambition extends beyond merely filling the void left by China in the US market. The country envisions the BTA as a springboard for significantly increasing two-way trade with the US. This includes offering a diverse range of products, from electronics and pharmaceuticals to textiles and auto parts. The goal is to position India as the preferred replacement for China, working towards the ambitious target of doubling bilateral trade with the US to $500 billion by 2030. This target is ambitious but achievable if India can successfully navigate the negotiations and address the concerns of both sides. India's proactive engagement with the US is evident in the multiple rounds of talks that have already taken place, surpassing the level of engagement with any other country currently negotiating with Washington. These discussions have laid a strong foundation for the BTA. To maintain momentum, discussions are transitioning to an online format, with a physical meeting planned for May to finalize the remaining details. IIF Capital highlights India's favorable position in securing a BTA with the US, citing interactions with commerce personnel. External Affairs Minister S. Jaishankar emphasized India's early engagement with the Trump administration, initiating BTA discussions immediately after Trump's inauguration. Commerce Minister Piyush Goyal has been actively advocating for the rollback of the 26 percent duties on Indian exports, recognizing the significant impact these tariffs have on Indian businesses. He has met with export and industry bodies to gather feedback and identify opportunities arising from the BTA. Goyal acknowledges that India was not a primary target for tariffs, given its ongoing engagement in bilateral trade negotiations. However, he remains committed to working with the US to eliminate these additional tariffs in the near future. Pankaj Mahindroo, chairman of the India Cellular and Electronics Association, commends the government's transparency in its approach to the BTA. He believes that India has a head start in the negotiations due to the existing BTA understanding. However, he stresses the importance of ensuring that the BTA is robust and sustainable in the long term, preventing India from losing out to other countries with lower US tariffs.
The stakes are undeniably high for India, as the US represents its largest export market. Nearly 20 percent of India's $86-billion in merchandise exports, encompassing electronics, pharmaceuticals, textiles, and jewelry, are destined for the US. Furthermore, a substantial portion of India's $341 billion in IT, outsourcing, and financial services exports also flows to the US. The US has presented a comprehensive list of goods for which it seeks duty-free access to the Indian market. While specific details are confidential, reports indicate that this list includes US agricultural exports such as apples, cherries, pecan nuts, and whiskey. Corn and soybeans are also high on the agenda, although India remains cautious due to concerns surrounding genetically modified (GM) crops. To address these concerns, Indian officials are considering a 'zero-for-zero' deal, eliminating tariffs on 90 percent of industrial goods. This approach mirrors New Delhi's strategy in negotiations with the EU, particularly in sectors like textiles and clothing. Such a deal would provide India with easier access for its exports while preserving policy flexibility in sensitive areas like agriculture. Currently, the US 'reciprocal tariff' imposed by President Trump adds 10 percent to previous tariffs under India's most-favoured nation (MFN) status. The US is particularly interested in gaining access to India's heavily protected market for corn and soybeans, products that are facing challenges due to China's reduced demand. China's imposition of counter-tariffs of 84 percent on US imports has significantly impacted US farmers, a key constituency for President Trump. In 2023, China imported over 26 million tonnes of US soybeans, representing 55 percent of America's total exports. The potential loss of the Chinese market poses a significant threat to US agriculture. India is carefully considering the implications of allowing GM crops like US soybeans, which have been a source of controversy. A potential compromise could involve designating specific processing units to handle GM imports, minimizing the risk of contamination. Additionally, India is exploring duty-free imports from the US in sectors covered by its Production-Linked Incentive (PLI) schemes, including mobile phones, drones, and specialty steel. These imports would be subject to strict 'rules of origin' to ensure that genuine value-addition occurs within India.
The current trade dynamics, characterized by the US-China standoff, present India with a significant opportunity to secure a favorable trade deal. The US is keen on diversifying its supply chains and reducing its reliance on China, making India an attractive partner. The stakes are high for India, as the US is its largest export market, accounting for nearly 20 percent of its merchandise exports and a substantial portion of its IT and services exports. During Prime Minister Narendra Modi's recent visit to Washington, both countries expressed their commitment to an 'innovative, wide-ranging BTA' encompassing goods and services. The aim is to enhance market access, reduce tariff and non-tariff barriers, and deepen supply chain integration. India is also actively pursuing other trade agreements, leveraging the evolving global trade landscape to accelerate negotiations with key partners, particularly the UK and the European Union. India and the UK are close to finalizing a long-awaited free trade agreement, with officials reporting that 90 percent of the deal has already been negotiated. Both governments are eager to conclude the agreement by the end of the year. Remaining issues include tariff reductions on Scotch whisky and automobile imports, which have been long-standing points of contention. However, New Delhi recently made a surprising offer to reduce tariffs on US Bourbon whiskey from 150 percent to 50 percent, a proactive move under pressure from Trump. This concession may now be extended to Scotch whisky. India is the world's largest consumer of Scotch by volume and the fifth largest by value. In February, Modi and European Commission President Ursula von der Leyen agreed to finalize the long-stalled Free Trade Agreement (FTA) with the EU by the end of 2025. Both sides are reportedly considering breaking the deal into smaller, more manageable stages to expedite progress.
India is relying on these FTAs to unlock substantial long-term export opportunities across Europe and the UK. India's negotiating position has strengthened due to shifting global dynamics and growing friction between the EU and the US. The European bloc is demonstrating greater openness to addressing India's concerns regarding non-tariff barriers, such as the carbon border tax and deforestation rules. India's primary concern regarding the EU's Carbon Border Adjustment Mechanism (CBAM) is its potential to penalize exports, particularly from sectors like steel, cement, and aluminum, by imposing additional charges on goods deemed carbon-intensive. India argues that this negatively impacts developing countries that are still developing their green capabilities. Regarding the EU's deforestation rules, India is concerned that they could complicate or restrict exports of products like coffee, tea, leather, and wood-based goods. India is actively engaging with the EU to find mutually acceptable solutions that address these concerns while promoting sustainable trade practices. In conclusion, India is strategically positioned to capitalize on the current global trade environment, leveraging its strong relationships with key partners and its growing manufacturing capabilities. The successful negotiation of the BTA with the US, along with the ongoing progress in FTA negotiations with the UK and the EU, will be crucial in achieving India's ambitious trade goals and solidifying its position as a major player in the global economy. The next few months will be critical as India navigates these complex negotiations and works towards securing trade agreements that will benefit its economy and its citizens for years to come. The interplay of geopolitical factors, domestic considerations, and trade policies will ultimately determine the success of India's efforts to transform its trade relations and emerge as a leading global economic power. The focus on balancing domestic agricultural sensitivities with international trade ambitions will be key in ensuring a sustainable and equitable outcome for all stakeholders involved.
Source: US tariff time bomb: India sprints to beat clock for 'lifetime' opportunity - Telegraph India