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India-US Bilateral Trade Agreement
Context:
PM Modi and US President Trump agreed to finalise a Bilateral Trade Agreement (BTA) within 7–8 months, following the US announcement of reciprocal tariffs from April, potentially impacting India and other trading partners.
Key Discussion of the meeting
- Energy & Critical Minerals Cooperation
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- Expanding Energy Trade
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- The US emerged as a key energy supplier to India, with exports of crude oil, LNG, and coal rising significantly.
- Agreements to enhance energy security and diversify India’s energy mix.
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- Collaboration on Critical Minerals
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- India and the US agreed to enhance cooperation on critical minerals essential for high-tech industries and clean energy transitions.
- Focus on lithium, cobalt, and rare earth elements (REEs) to reduce dependency on China.
- Establishment of a strategic minerals partnership to secure supply chains.
- Defense & Technology Partnerships
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- Advancements in Defense Trade
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- Strengthening of Defense Technology and Trade Initiative (DTTI) to promote co-development and co-production of military equipment.
- Discussion on potential sale of MQ-9 Reaper drones, advanced air defence systems, and fighter jets.
- Emphasis on joint military exercises and operational interoperability.
- US-India COMPACT & TRUST initiatives strengthen defence co-production, AI, semiconductors, and quantum computing, reinforcing India’s push for Atmanirbhar Bharat (self-reliant India).
- The India-Middle East-Europe Corridor aligns with India’s connectivity diplomacy, countering China’s Belt & Road Initiative (BRI).
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- Technology and Digital Cooperation
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- US backing for India’s 5G deployment and AI research collaborations.
- Agreements on semiconductor manufacturing and critical technology cooperation to reduce reliance on Chinese suppliers.
- Enhanced cooperation on cybersecurity frameworks.
- Geopolitical & Diplomatic Takeaways
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- Strategic Alignment in the Indo-Pacific
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- Strengthening of the Quad (India, US, Japan, Australia) as a regional security framework.
- Focus on rules-based maritime order, countering China’s assertiveness in the Indo-Pacific.
- The Tahawwur Rana extradition is a diplomatic win for India in its fight against terrorism.
- Modi’s “MAGA + MIGA = Mega Partnership” pitch aligns with both leaders’ nationalistic economic priorities.
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- Economic and Trade Diplomacy
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- India’s interest in joining US-led supply chain initiatives to reduce dependency on single-source suppliers.
- Greater collaboration under frameworks like IPEF (Indo-Pacific Economic Framework for Prosperity).
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- Support for WTO Reforms
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- Both nations emphasised the need for WTO reforms to ensure fair trade practices.
- Push for reducing trade-distorting subsidies and improving dispute resolution mechanisms.
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Trade & Tariff Dynamics
- Trump’s Tariff Policy and India’s Response
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- The Trump administration’s tariff policy was focused on reducing the US trade deficit and pressuring allies and partners to lower their trade barriers.
- In 2018-19, the US imposed higher tariffs on steel (25%) and aluminum (10%) imports, affecting Indian exports.
- India retaliated with reciprocal tariffs on 28 US products, including agricultural goods.
- In 2019, the US revoked India’s Generalised System of Preferences (GSP) status, citing lack of “equitable and reasonable access” to Indian markets.
- The U.S.’s reciprocal tariff policy could be a double-edged sword for India. While it forces parity, it may also create short-term trade friction, especially in agriculture and industrial goods.
- The Mission 500 target of $500 billion in trade by 2030 will require significant tariff reductions, eased market access, and deepened supply chain integration.
- Key Tariff Discrepancies
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- India’s Most Favored Nation (MFN) tariffs are higher than those of the US, leading to trade imbalances.
- The average applied tariff rate in India is ~17%, whereas the US maintains an average rate of 3.4%.
- The US has often raised concerns about high Indian tariffs on automobiles (100%) and dairy products (40%), while India criticises US agricultural subsidies.’
Need for the Trade Agreement
- Trump’s “America First” policy sought to secure better trade deals by reducing trade deficits with major economies.
- The US sought greater market access for its agricultural and manufacturing products.
- India aimed to restore preferential treatment under GSP and reduce uncertainties in trade relations.
Initiatives to Strengthen Trade Relations
- India-US Commercial Dialogue revived to facilitate trade and investment.
- US-India Trade Policy Forum (TPF) discussions to resolve tariff and non-tariff barriers.
- Joint Working Groups established to address specific trade concerns in areas like pharmaceuticals, textiles, and agriculture.
Challenges and Future Outlook
- Persistent tariff and non-tariff barriers in agriculture, automobiles, and medical devices.
- Data localisation concerns, with the US opposing India’s restrictive data policies.
- Visa and work permit issues, impacting Indian IT professionals.
Future Prospects
- Need for a comprehensive trade agreement that addresses market access, intellectual property rights, and investment protections.
- Expansion of India-US economic partnerships through deeper technology transfers and digital trade.
- Leveraging QUAD and I2U2 (India-Israel-UAE-US) frameworks to enhance economic ties.
The India-US Bilateral Trade Agreement holds the potential to transform economic relations, but challenges remain in achieving a balanced and mutually beneficial outcome.
