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Racing the clock on US India tariffs

3 min read

Overview of US-India Trade Negotiations

The ongoing trade negotiations between the United States and India are crucial as the 90-day pause on new American tariffs is set to expire on July 9. The US had announced two tariffs affecting all imports and targeting Indian goods. These negotiations, which involve significant economic cooperation between the two large economies, are taking place in the context of a looming deadline.

Key Aspects of the Negotiation

  • Leverage of Tariffs: The US is using tariffs as leverage, and India has shown significant flexibility in response by offering to cut tariffs to near zero on non-agricultural goods imported from the US. 
  • India's Offer: India has extended a preferential tariff reduction to the US, not accessible to other WTO partners, a rare move outside full free trade agreements. 
  • Implications for India: Failure to reach an interim deal could result in a 26% tariff on Indian exports, severely impacting the country's economy and job market. 
  • India's Demand: India seeks exemption from the new tariffs, reciprocating its offer of near-duty-free access by expecting similar treatment from the US. 

Comparative Case: US-UK Tariff Deal

The recent US-UK tariff agreement provides both a template and cautionary tale. While the UK secured partial relief under pressure, it did not achieve full exemption from the universal tariff. India's offer is more comprehensive, aiming for full exemption to avoid backlash at home.

Potential Outcomes

  • Scenario 1: Exemption from the 16% tariff only. Indian goods become pricier, affecting sensitive sectors. This scenario avoids a trade war but poses political challenges in India. 
  • Scenario 2: Exemption from both tariffs, a favorable outcome for India showcasing strategic trust and could lead to a broader bilateral trade agreement. 
  • Scenario 3: India reciprocates by imposing similar tariffs, which keeps negotiations ongoing but complicates the market entry for US goods. 

Section 232 Investigations

India must prepare for the outcomes of several pending Section 232 investigations, crucial for sectors like pharmaceuticals. Similar to the UK's strategy, India should aim for negotiated relief through quotas and carve-outs.

The Road Ahead

Prime Minister Modi's choice to prioritize dialogue has created room for diplomacy, and a successful deal would validate this approach. Both countries aim to tackle broader trade issues by fall as part of the first tranche of the bilateral trade agreement, with a shared goal to enhance trade relations significantly by 2030.

The urgency is highlighted by the looming expiration of the tariff pause and the significant offers and pauses made by both sides, making a fair and strategic agreement essential.

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