India and the United States are negotiating a three-stage trade agreement with a make-or-break deadline of July 2025 looming over them to put an end to historic trade tensions and avoid the reimposition of tariffs. The step, well-reported widely in business and diplomatic circles, is a news push towards economic diplomacy as the economic and geopolitical landscape is being reshaped. The negotiations, whether successful or not, would avoid the reimposition of tariffs put on hold in the context of a 2023 World Trade Organization (WTO) agreement. This analysis explores the context, key points involved, and the larger significance of this trade negotiation.
History
India and the US have also had a problematic history of cooperation in technology and defense, but tensions have arisen in agriculture, tariffs, and e-commerce. The US imposed tariffs on Indian steel and aluminum imports under Section 232 during 2018-2019, which led to retaliatory tariffs by India on a variety of U.S. goods. This led to a series of disputes at the WTO.
There had been a brief thaw in June 2023, when the two nations agreed to put six WTO disputes on hold, with India reversing some retaliatory import taxes. This was subject to a permanent solution. The new three-phase structure is an effort to substitute short-term pacts with a formal, binding trade agreement.
The urgency stems from the deadline of July 2025 deadline when suspended tariffs would be reinstated automatically unless a final deal is reached.
Proposed Deal
Short-term Solution –A low-hanging fruit trade agreement on immediate issues: market access of certain agricultural products, and harmonizing regulations.
Mid-term Agreement –Broader negotiations on agricultural product market access concerning tariff structures, as well as aspects of digital trade, including data localization and e-commerce norms.
Long-term Strategic Partnership –Bringing both countries into a larger strategic conversation regarding supply chain resilience, clean energy, and defense-related trade from both countries.
This incremental strategy is intended to build trust while addressing politically sensitive sectors in both countries.
Claim and Evidence
The justification that a multi-stage agreement might be less challenging, especially as it “follows pragmatic diplomacy,” is seen as a silver-lining because previous extensive trade negotiations (for example – a Free Trade Agreement, or Bilateral Investment Treaty) failed because the two countries were so divergent on issues (and decisions) like patent protection, agriculture subsidies, and digital governing issues.
So, experts, including Richard Rossow of the Center for Strategic and International Studies (CSIS) points out, even making partial deals requires diplomatic will and bureaucratic coordination, and of course political will remains an obstacle to working on all trade issues, with the restrictive positions of India on data sovereignty and local content rules impacting U.S. investment.
From the U.S. perspective, to the extent the Biden administration favours sectoral deals over comprehensive trade agreements (for example by pursuing Indo-Pacific Economic Framework talks), it naturally follows that its suggested phased processes, to use some of South African Kelly’s terminology, where dealing in stages in there markets responds to the reality of incremental growth for island economies.
Indian Exporters: They would benefit with greater access to the US market and reduced compliance requirement, especially in pharmaceuticals and textiles.
U.S. Agri-business: They have long been looking to gain access to India’s market, with possible concessions being dairy, poultry and genetically modified crops where talks have been stalled or derailed in the past.
Digital Economy Stakeholders: US tech companies oppose India’s data localisation rules because they raise costs and suppress innovation. Indian regulators, on the other hand, have arguments in favor of consumers and national security.
The consumers: The deal can bring more product choice and lower prices to both countries if tariff barriers are lifted.
Avoid Reimposition of Tariffs: Unless expired tariffs are reimposed, billions of dollars worth of two-way trade would be untouched.
Enhance Strategic Partnerships: The agreement would offer a model for Indo-U.S. cooperation in other areas, such as semiconductor value chains and clean technology.
Shape Global Standards for Trade: Both nations are participants in WTO reform, and a successful bilateral pact could demonstrate a way to plurilateral and regional trade talks.
Set Precedents: If the settlement is made on matters such as e-commerce and access to agri-markets, precedents will be established for India’s future trade talks with the EU and UK.
Alternatively, if a settlement is not found, it would lead to economic disruption and harm diplomatic goodwill.
India’s talks with the US follow the pattern of India’s agreements with Australia and the UAE, which each emphasize progressive (phased implementation) and sector-specific techno-commercial agreements. The dynamic of the India-US relationship is different from those other agreements in that it is further complicated by a range of geopolitical calculations related to China, technology security, and multilateral institutional reform.
In a similar way, the U.S. effort appears to be shaped by its past negotiations under the Indo-Pacific Economic Framework (IPEF), where the negotiations were emphasized on standards, rather than merely tariff reductions, suggesting a shift away from a traditional approach to FTAs, and recognition of an emerging trend toward modular arrangements.
Conclusion
India’s emphasis on a three-stage trade deal with the U.S. represents a reasonable recalibration of trade policy in light of the changes in geopolitics, economic self-interest, and diplomatic impatience. The approach likely recognizes the complex political and regulatory dynamics at play while acknowledging the inherent risks of delay and partiality.
With a deadline of July 2025, there is urgency to see the process move forward, but the real test lies in whether the two countries can overcome domestic resistance and find a way to unify their greatly divergent economic models.
The deal is proposed to be more than a trade part… it is strategically a barometer of the evolving Indo-U.S. relationship in a fragmented global order.
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