India races to buy time with US as tariff war flares

According to two people familiar with the development, the Indian government is exploring a plan to negotiate the suspension of the 26% tariffs imposed by the US on Indian goods until a Bilateral Trade Agreement (BTA) between the two countries is finalized by fall 2025.

"We are exploring all possible avenues to mitigate the potential losses our exports may face if the reciprocal tariff measures announced by the US administration remain in place. India does have an added advantage, as it is the only country that has been offered the opportunity to pursue a bilateral trade agreement with the US," said the first among the two persons mentioned above.

As per the plan, India would either seek a suspension of the 26% reciprocal tariffs on all products until the BTA is concluded, or negotiate temporary relief for a select list of high-performing export categories such as textiles, engineering goods, and electronics goods, this person said.

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Queries emailed to the ministries of commerce and external affairs remained unanswered till press time.

“Whatever is feasible within the scope of ongoing trade discussions and our international commitments will be pursued," the second person said.

India’s attempt to secure a suspension of reciprocal tariff measures comes in the backdrop of several such steps taken in the past by other trading partners to facilitate dialogue and finalize trade agreements.

For instance, in 2020, the US suspended planned tariffs on Chinese goods during negotiations that led to the “Phase One" trade deal. In 2021, the US and the European Union agreed to suspend retaliatory tariffs for five years in the long-standing Airbus–Boeing subsidy dispute to create space for a negotiated settlement. Closer home, in FY19, India delayed the imposition of retaliatory tariffs on 29 US products including almonds and apples, while trade talks with Washington were underway.

As per the plan, negotiations for the deferment of the 26% duty are being pursued through ongoing discussions with US trade officials and diplomats, following consultations with industry representatives, the second person said.

Also read | India eyes swift trade pact with US amid higher tariff pressures on Asian rivals

Earlier, Mint was the first to report on 4 April that India will aim to conclude trade talks quickly, instead of taking tit-for-tat measures.

Indian exports

India’s merchandise exports to the US have been on an upward trajectory over recent years. In FY22, India’s merchandise exports were valued at $75.6 billion, and this increased to $78.3 billion in FY23, demonstrating a strengthening trade relationship. Although FY24 saw a slight dip to $77.5 billion, primarily due to supply chain disruptions, the long-term trend remains positive.

To be sure, the US has a trade deficit with India, which was $35.32 billion in FY24.

On Monday, trade think tank the Global Trade Research Initiative (GTRI) said in a report that India could see a $5.76 billion or 6.41% decline in goods exports to the US in 2025 following the new tariffs. The worst-hit could be segments such as gems and jewellery, marine products, electronics, and auto parts.

"The government should not give in to pressure from the Trump administration in the wake of the reciprocal tariff measures and instead remain focused and put in place a well-thought-out and calibrated strategy to reinvigorate India’s trade engagement with all key partners across continents," former Union commerce minister Anand Sharma said.

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“India must safeguard its national interest and avoid yielding to pressure from the Trump administration, as any deviation from its WTO commitments could risk diminishing the goodwill it enjoys among developing countries and affect its role as a prominent voice for the Global South," Sharma said over the phone.

The new duties are part of a broader US strategy to align tariffs with reciprocal market access, and while energy products such as petroleum and solar panels, along with pharmaceuticals, remain exempt, the steep hike across a broad swathe of industrial and consumer goods has made Indian products significantly less competitive.

On the impact of the steep hike in tariffs, GTRI founder Ajay Srivastava said, “We’re likely to see sharp declines in some sectors while others may benefit from trade diversion, especially where Chinese goods have been penalized even more heavily."

Exports of gold jewellery and polished diamonds —worth $11.9 billion last year—are expected to drop by $1.82 billion due to the new 30.2% tariff, significantly reducing the attractiveness of Indian gems in the US market, Monday's GTRI report said. Similarly, electronics and smartphone exports, which had surged to $14.4 billion, are likely to fall by $1.78 billion, as new tariffs of nearly 27% eat into already thin margins.

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The first round of face-to-face discussions to finalize the contours of the BTA were held from 26 to 29 March, with the US delegation led by Brendan Lynch, Assistant US Trade Representative for South and Central Asia. The next round of talks will be held virtually.