Opinion
India-US talks: The two democracies must think big as they rework commercial ties
Summary
- Tariff friction can be resolved through an appropriate mechanism. It should not get in the way of exploiting the economic opportunity that lies in closer relations.
The US Trade Representative team’s talks in Delhi last week with Indian officials can be seen as part of an effort to find a way to avoid President Donald Trump’s tariffs on Indian exports that mirror the burden faced by US goods entering India.
The US and India, once tethered to market debates in a transactional context, now navigate a relationship redefined by supply-chain wars, tech supremacy and containment of China. Their collaboration—and competition—reveals how commerce is being weaponized in the 21st century, with tariffs, sanctions and industrial policy being deployed for strategic ends.
In this milieu, tariffs and retaliatory tariffs are not a zero-sum game; they cause injury all around. In 2019, almond farmers in California’s Central Valley watched helplessly as their largest market evaporated overnight. India had just slapped retaliatory tariffs on American almonds and walnuts in response to the US revoking India’s preferential trade status under the Generalized System of Preferences (GSP) programme and imposing additional tariffs on its steel and aluminium.
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This wasn’t just about nuts; it was a calculated geopolitical gambit. The Indian move ended up reducing California’s exports by 20%. Such skirmishes reveal how localized industries become casualties in broader geopolitical gambits.
While tariff narratives dominate headlines, the real friction lies deeper. US firms face labyrinthine compliance rules, shifting tax regimes and policies they perceive as discriminatory. Alleviating these will offer the US economy gains. Tariffs are a blunt transactional tool. Investment engagements, on the other hand, demand trust.
The Indian government could consider creating a mechanism to resolve ‘structural’ inequities. This could address issues that deter long-term bets on the Indian market—tax arbitration proceedings, retrospective tax claims and uneven treatment vis-a- vis Indian companies. This can unlock far more value than tariff haggling.
While ‘friend-shoring’ presents India investment opportunities, these often come with tough conditions—strict labour and environmental standards.
A US-India bilateral investment treaty, shelved since 2016, could help stabilize arrangements and put these ties on an even keel. As both governments will face issues that reflect competing interests, an overarching platform for their effective resolution would be mutually beneficial.
Also Read: BITs shouldn’t bite: Time to rework India’s approach to bilateral investment treaties
Despite the prevailing trade skirmishes, US-India collaboration has witnessed a significant step-up in defence technology (jet engine co-production) and critical sectors (rare earths, AI, et al). Treading this path is fraught with challenges. The ‘Transforming the Relationship utilising Strategic Technology’ initiative (Trust) exemplifies this uneasy synergy: the US shares sensitive technology with its allies to counterbalance China, while India navigates partnerships without alienating Moscow or its other partners.
Another example is the sentiment of US defence firms vis-a-vis the Indian market. While they heap praises on its potential, they bristle at local sourcing mandates—a reminder that even allies must look after their own interest.
India’s flagship production-linked incentive (PLI) scheme for domestic manufacturing has ambitions to lure global technology and pharma giants. It is paired with measures to curb imports from China. While the scheme has attracted US firms like Micron and Apple, India’s overall policy framework seems to frustrate American businesses facing barriers. India’s self-reliance drive is seen to clash with their interests, as they would prefer open access to the India market for their shipments.
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On the other side, the US under the Biden administration had a $52 billion subsidy plan for domestic semiconductor production aimed at weakening China’s grip on critical industries. This has an ‘America First’ orientation.
The US also has export controls on advanced chips that aim to cripple China’s tech rise but put India in a precarious position. While Micron’s $2.75 billion Gujarat plant is a good sign, India’s chip dreams hinge on accessing cutting-edge technology.
Going forward, India’s engagement with the US needs to be underscored by a meaningful decoupling from China. This should include joint ventures in semiconductors and pharma to build parallel supply chains, thereby reducing the dependence of both on third countries.
We also need to fast-track a ‘tech-trade’ pact that addresses digital governance, tariffs and intellectual property under a single framework. This will help pre-empt disputes.
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At a geo-strategic level, India must leverage the four-nation Quad arrangement. Giving primacy to the Quad could eventually help turn this Indo-Pacific partnership into an economic bulwark.
The US and India are now in a new global environment where success hinges on transforming tactical alliances into mechanisms for structural resilience, or risk becoming collateral in a fragmented global order. In this new era of weaponized commerce, economic power is not just about growth; it’s about survival.
These are the author’s personal views.
The author is director, public policy, Uber (India and South Asia) and former additional secretary, ministry of commerce.
