India and the United States are edging closer to sealing an interim trade agreement, with Washington reportedly willing to lower its proposed tariff rate on Indian goods from 26% to below 20%, according to a Bloomberg report. An Indian delegation is expected to visit the US shortly to finalise the deal, even as broader geopolitical tensions add complexity to the ongoing negotiations.
While US President Donald Trump recently suggested that an agreement was imminent, his administration’s unease over India’s growing role within the BRICS bloc has injected fresh uncertainty into the talks.
India’s Offer on the Table; Ball in US Court
Indian negotiators have conveyed what they consider their final and best offer, outlining firm red lines. It is now up to the US to respond. The stakes are high, with both sides seeking to reset trade ties after years of limited progress. However, Indian analysts and trade watchers caution against rushing into a deal under US pressure.
A report from the Global Trade Research Initiative (GTRI) warned that an ill-considered agreement could have “irreversible consequences” for core Indian sectors, urging a careful and measured approach to the final stages of negotiation.
SBI Research: Tariff Threat Can Be Strategic Opportunity
State Bank of India (SBI) Research has suggested that even if the deal falters and the US proceeds with a 10% hike in tariffs on Indian imports, New Delhi still has the opportunity to realign its trade strategy and tap new global markets.
One major area of potential lies in chemical exports, particularly pharmaceuticals. India possesses a revealed comparative advantage (RCA) in this sector, and with the US currently imposing a 55% tariff on Chinese goods, Indian firms could expand their market share, especially if New Delhi secures a tariff rate lower than Singapore’s 25%. SBI estimates that India could capture 2% of the US chemical import market, translating to a 0.2% boost in GDP.
Further, by targeting export shares held by countries like Japan, Malaysia, and South Korea—who currently face higher tariffs—India could unlock an additional 0.1% GDP gain, even with modest increases in chemical shipments to the US.
Apparel Sector: Another Window for Expansion
India’s textile and apparel exports also stand to benefit. Holding a competitive edge over nations like Bangladesh, Cambodia, and Indonesia—most of which face higher US tariffs—India could expand its 6% share in the US apparel market. SBI projects that capturing an additional 5% of this market could add another 0.1% to India’s GDP.
ASEAN Trade Push Amid Stalled US Talks
Parallel to its US negotiations, India is also revisiting its Free Trade Agreement (FTA) with the ASEAN bloc to resolve long-standing issues such as tariff asymmetries and lenient rules of origin, which have facilitated the indirect entry of Chinese goods into the Indian market.
While India’s export share to ASEAN has declined, imports remain robust. Strengthening this FTA could help India expand into Southeast Asian markets, especially in sectors like agriculture, chemicals, and processed goods—areas where China has significantly increased its footprint.
Dairy Sector Emerges as Key Sticking Point
One of the most contentious issues in the India-US trade discussions is American demand for greater access to Indian agriculture and dairy markets. India, however, remains wary of the potential fallout for its 80-million-strong rural workforce.
SBI Research estimates that opening the dairy sector could lower domestic milk prices by up to 15%, resulting in an income loss of ₹1.03 lakh crore for Indian farmers. Such a price drop could slash Gross Value Added (GVA) from the dairy sector by ₹0.51 lakh crore, posing a significant threat to rural livelihoods and food security.
While urban consumers may benefit from cheaper imports, the shift in producer surplus could devastate small and marginal farmers. SBI warns that the social and economic costs could far outweigh any short-term gains.
EU, Others Rethink Trade Strategy Amid US Tariff Hikes
As the US intensifies its tariff agenda—announcing new 30% duties on EU and Mexican imports effective August 1—affected economies are reassessing their global trade strategies. Media reports suggest that the European Union is now actively seeking to strengthen trade partnerships with India and other Asia-Pacific economies in response.
SBI notes that this realignment offers India further scope to expand exports, particularly in commodities where it holds a comparative advantage. As global supply chains adjust to shifting tariff regimes, India has the opportunity to position itself as a key alternative for partners seeking stable, low-tariff trade relationships.
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