India-U.S. BTA: Ten Unique Challenges for India
Since early 2025, India and the U.S. have been negotiating a bilateral trade agreement (BTA), which promises to be the largest and most extensive free trade agreement India has negotiated thus far. The BTA was announced through the United States-India Joint Leaders’ Statement, and the first tranche of this mutually beneficial, multi-sector agreement was to be negotiated by the fall of 2025 (https://bit.ly/4wXiUdI). However, with President Donald Trump and his administration spending most of 2025 pursuing aggressive unilateralism not seen since the 1930s, the BTA negotiations moved relatively slowly.
India’s FTA with the EU, agreed upon in January 2026 (https://bit.ly/4fzFp1b), may have been the impetus that President Trump needed to focus on the BTA. Exactly a week after the EU-India FTA announcement, the U.S. President informed on his social media platform that India and the U.S. had agreed to a trade deal. A framework for an Interim Agreement was spelt out in the United States-India Joint Statement (https://bit.ly/4frKxEw). Although this Interim Agreement was seen as the basis for concluding a “mutually beneficial BTA”, India started with an initial disadvantage. While India agreed to “eliminate or reduce tariffs on all U.S. industrial goods and a wide range of U.S. food and agricultural products”, including dried distillers’ grains, red sorghum for animal feed, fresh and processed fruit, soybean oil, wine and spirits, it allowed the U.S. to “apply a ‘reciprocal tariff’[1] rate of 18 percent on originating goods of India, including textile and apparel, leather and footwear … and certain machinery …” However, this agreement was effectively annulled after the U.S. Supreme Court ruled that President Trump could not impose a ‘reciprocal tariff’ using the IEEPA without the U.S. Congress explicitly authorising him to do so (https://bit.ly/3RDpmaT). This sent BTA negotiations back to the negotiating table.
However, since the end of June 2026, both governments have sounded quite optimistic about an early conclusion of BTA negotiations. At least ten features of the BTA set it apart from all the free trade agreements (FTAs) India has negotiated thus far, and these can be divided into two broad categories. First, the U.S. has consistently made a range of tall demands, from steep reductions in agricultural tariffs to amendments in key legislations, including patents and other forms of intellectual property rights. Second, the Trump Administration shifted its policies regularly, making it difficult for India to protect or promote its own interests through negotiations. These policy shifts may indicate the uncertainties the Indian government is expected to face while implementing the BTA. This paper dwells on these features.
1. India decided to negotiate the BTA in the backdrop of President Trump’s “America First” trade policy, the trade policy for his second term, one the main objectives of which is to “investigate the causes of [the U.S.’] country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures, such as a global supplemental tariff or other policies, to remedy such deficits” (https://bit.ly/4gZft1C). What is more striking is that the United States-India Joint Leaders’ Statement announcing the decision to launch the BTA negotiations came on the same day on which President Trump announced the centrepiece of his trade unilateralism, namely, the “Fair and Reciprocal Plan”, “to reduce [U.S.’] large and persistent annual trade deficit in goods and to address other unfair and unbalanced aspects of [U.S.’] trade with foreign trading partners” (https://bit.ly/4bOAc4D). Therefore, India, a country with which the U.S. ran “persistent” trade deficits, was directly under the scanner of the Trump Administration.
President Trump’s overarching policy framework, the “America First” trade policy, included a second key objective, namely, to “identify countries with which the United States can negotiate agreements on a bilateral or sector-specific basis to obtain export market access for American workers, farmers, ranchers, service providers”. India’s decision to agree to formalise the BTA thus enabled the U.S. to use this agreement as leverage to promote the interests of its own stakeholders, without guaranteeing reciprocal advantages to its partner, as is normally done in a typical FTA. The terms of engagement with the U.S. were already skewed against India even before the BTA negotiations commenced. This is something that the Indian government has never experienced before.
2. The Terms of Reference (TOR) of the BTA indicated that the negotiating dynamics could be against India (https://bit.ly/4gU8tD5), as the following three objectives were highlighted: (i) goals for the U.S. included increasing market access, reducing tariff and non-tariff barriers, and negotiating a robust set of additional commitments to ensure long-term benefits; (ii) in addition to tariffs, technical barriers to trade, regulatory barriers, and restrictions on access to the market in the services, industrial, and agricultural sectors which reduce U.S. exports to India would be targeted; and (iii) The TOR announcement with India was a critical step forward in negotiations with India to achieve reciprocal trade with one of U.S.’ most strategic partners and deliver results to the American people. The overwhelming objective of the TOR was to support the realisation of “America First”.
3. The announcement of the TOR coincided with the launch of the centrepiece of President Trump’s unilateralism, namely, the “Fair and Reciprocal Plan” (https://bit.ly/4x2PNFS). This plan was designed to counter “non-reciprocal trading arrangements” by imposing a ‘reciprocal tariff’ on trade partners that did not give the U.S. “reciprocal treatment”. He pointed out that the U.S.’ average tariff was among the world’s lowest at 3.3%, while India’s was significantly higher (17%). ‘Reciprocal tariff’ was designed to reduce tariff differentials with key trade partners, including India.
President Trump explained his intent, giving India’s example, among others: while the U.S.’s average tariff on agricultural goods was 5%, India’s average tariff was 39%. India also charged a 100% tariff on U.S. motorcycles, while the U.S. only charged a 2.4% tariff on Indian motorcycles. The U.S. imposed a 2.5% tariff on passenger vehicles, but India’s duties were much higher (70%). For rice in the husk, the U.S.’ tariff was 2.7% against India’s 80%. Using tariff comparisons, Donald Trump conveyed his unambiguous message to India that he was seeking a sizeable reduction in India’s tariffs, including on a sensitive product like rice. The U.S. was clearly eyeing a share of India’s rice market.
4. The implementation of the ‘reciprocal tariff’ saw India’s exports to the U.S. facing additional tariffs of 25%, the highest in South Asia. India’s textiles and clothing, the second largest product group among its exports to the U.S., thus faced a price disadvantage vis-à-vis similar products from other South Asian countries (https://bit.ly/4hvEBgr). In the initial announcement of the “Fair and Reciprocal Plan”, India’s ‘reciprocal tariff’ was the lowest among the South Asian countries, but this was reversed even as the BTA negotiations progressed.
Additional tariffs of 25% were imposed on India for “directly or indirectly importing Russian Federation oil”, which became effective from late August 2025. This was an unprecedented affront to India’s energy security policy.
5. In early February, India and the U.S. reached a framework for an Interim Agreement, the first step towards a BTA (https://bit.ly/4frKxEw). India agreed to eliminate or reduce tariffs on all U.S. industrial goods and a wide range of food and agricultural products, but the U.S. gave itself the right to impose a ‘reciprocal tariff’ rate of 18% on India’s exports. India also agreed to “address long-standing non-tariff barriers to the trade in U.S. food and agricultural products”. This language almost suggested that India had agreed to drop its existing non-tariff barriers on imports of genetically modified crops from the United States. India also expressed its intent to purchase $500 billion worth of a range of U.S. products, including energy and technology products, over the next five years. This was the first time India agreed to a trade deal on terms that were grossly unequal.
6. President Trump further announced that the additional 25% tariff on imports from India would be dropped in recognition of India’s commitment to stop purchasing oil from the Russian Federation (https://bit.ly/4fUgiro), although this aspect of the deal did not figure in the United States-India Joint Statement that officially announced the interim agreement. The U.S. President’s announcement that India had agreed to stop importing crude oil from Russia was a major policy decision with far-reaching implications. Since 2022, an increase in oil imports from Russia has allowed India to manage its inflation, as the former was offering discounts. If India stopped Russian oil imports, it would have to rely on the U.S. and (probably) Venezuela to meet its needs, which would raise the landed price of crude oil, also due to higher transportation costs. Thus, the BTA negotiations raised serious questions regarding the future of India’s energy security, a truly unprecedented issue.
7. President Trump’s response to the U.S. Supreme Court’s adverse ruling on the imposition of a ‘reciprocal tariff’ was the Presidential Proclamation (No. 11012) “Imposing a Temporary Import Surcharge to Address Fundamental International Payments Problems” (https://bit.ly/4gYQhs0). Donald Trump used Section 122 of the Trade Act of 1974 (https://bit.ly/4c5lJBo), which empowers the President to impose “a temporary import surcharge, not to exceed 15 percent ad valorem” “for a period not exceeding 150 days”, “whenever fundamental international payments problems require special import measures to restrict imports to deal with large and serious United States balance-of-payments deficits”, among others. Using these provisions, the U.S. President imposed 10% tariffs on all countries, which expired on 24th July. However, with the expiry of Section 122 tariffs, the U.S. Court of International Trade ruled that “Proclamation No. 11012 is invalid, and the tariffs imposed … are unauthorized by law” (https://bit.ly/4gYVIXP). For India, negotiating the BTA while Section 122 tariffs were in place posed yet another level of uncertainty.
8. Weeks after Proclamation No. 11012, the United States Trade Representative (USTR) announced unilateral investigations under Section 301 of the U.S. Trade Act against 60 countries, including India. India was initially included among the countries facing the prospects of additional import duties of 12.5% for having “failed to impose and effectively enforce a prohibition on the importation of goods produced with forced labor” (https://bit.ly/4fyeEKG). According to the final ruling of the USTR, India faces additional import duties of 10%, at par with Pakistan and Bangladesh (https://bit.ly/4vVwDB0).
9. India is the target of a second set of Section 301 investigations for maintaining “structural excess capacity” in seven sectors–textiles, health, construction goods, automotive goods, solar modules, petrochemicals, and steel and “other industries”, covering a significant share of India’s exports. Although the USTR has not yet specified the level of additional import duties that are likely to be imposed, the outcome of these investigations could adversely affect India’s bargaining position in the BTA negotiations, since the U.S. would be in a position to seek additional concessions from India in exchange for lowering of the Section 301 tariffs.
10. While deepening economic integration through FTAs, India has been trying to secure guaranteed foreign capital inflows from its partner countries. Thus far, there have been two concrete instances of this. First, the Government of India stated that the India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA), being implemented since October 2025, is “committed to promote investments with the aim to increase the stock of foreign direct investments by US$ 100 billion in India in the next 15 years” (https://bit.ly/4wXdz6a). Second, the Government of India announced, after signing India’s FTA with New Zealand in April 2026, that the latter would invest US$ 20 billion in India, strengthening long-term economic ties (https://bit. ly/4×2quUr).
However, at the “SelectU.S.A Investment Summit” held in May 2026, Indian companies declared that they would invest $20.5 billion in the U.S. in pharmaceuticals, advanced manufacturing, energy infrastructure, and emerging technologies (https://bit.ly/4gU7eDV). India’s pharmaceutical companies have agreed to invest $19.1 billion. In addition, the Adani Group pledged to invest $10 billion in energy security and resilient infrastructure projects (https://bit.ly/3Tqd5Hi).
Trump’s Aggressive Unilateralism Despite Ongoing BTA Negotiations
Aggressive unilateralism has been one of the major features of President Donald Trump’s presidency, even during his first term, but was used selectively against a few trading partners. However, in his second term, this policy has been used more frequently than ever before by any country. In the 18 months since the beginning of President Trump’s second term, his administration has used tariffs close to 70 times (https://bit.ly/3TZ0SJM). During this period, the U.S.’ average most-favoured nation (MFN) tariffs increased from close to 2% to nearly 16% in August 2025. The U.S. Supreme Court ruling against ‘reciprocal tariff’ resulted in lowering U.S.’ average tariff to 9% in July 2026 and is expected to increase to over 10% by the end of 2026, when several proposed tariffs become effective https://bit.ly/3TGpVRO. As mentioned above, tariffs are expected to be imposed on countries, including India, which, according to the USTR, maintains excess capacity in several industries. The U.S. would impose a 100% tariff on imports of patented pharmaceuticals and their ingredients from the end of July to the end of September 2026 (for small companies) (https://bit.ly/3TZ0SJM). President Trump announced that imports of generic pharmaceuticals would face 100% tariffs from August 2028, increasing to 200% a year later (https://bit. ly/4×73Lqe). Pharmaceutical products are the second largest group of products, after mobile phones, in India’s exports to the United States. Therefore, President Trump’s proposed tariffs on these products could have a sizeable impact on India’s exports.
As stated above, the Trump Administration imposed additional tariffs of 25% on India for “directly or indirectly importing Russian Federation oil” in August 2025. Tariffs on India for importing crude oil from Russia could increase to 100%, as has been proposed in the Lindsey O. Graham Sanctioning Russia Act of 2026. This bipartisan bill, sponsored by over 60 senators (https://bit.ly/4wr9Fm9), received a favourable procedural vote to advance its vote in the Senate (https://bit.ly/4pPVp40), aimed at enhancing sanctions on Russia by forcing the five largest importers, by total volume, of crude oil or natural gas that originated in the Russian Federation during the most recent 12-month period to reduce their imports from Russia. India is the second largest importer of Russian crude oil and is significantly dependent on Russia (nearly 43% of its needs in June 2026). The proposed U.S. tariff could be a double whammy for India: one, exports to its largest market, accounting for over 19% in May 2026, could be severely affected, and two, India could be forced to reduce its crude oil imports from a country that was offering discounts of up to $10 a barrel in early July, although the discounts decreased subsequently (https://bit.ly/4hDfDf9).
Thus, Indian exporters face an uncertain future owing to the U.S.’s continued threats of tariff increases, despite the ongoing BTA negotiations. Bilateral FTAs between two countries generally provide a transparent and predictable set of rules, enabling the growth of trade and economic relations between the two countries.
Is India-U.S. BTA Worth Pursuing?
With the Trump Administration continually and unpredictably introducing new tariff barriers, the gains for India from the BTA with the U.S. seem increasingly unlikely. This stems from the fact that the U.S. President is primarily interested in using the BTA to reduce the U.S.’ trade deficit vis-à-vis India by reducing India’s exports to the U.S. and promoting the U.S.’ exports to India.
It must be pointed out that from India’s perspective, the BTA poses two overarching uncertainties. First, Donald Trump has been trying to secure a sizeable share of India’s agricultural market, including its primary cereals, soybeans, and cotton, among others, for the U.S. agri-business. This was made apparent as he targeted India’s relatively high tariffs on agricultural products, in general, and on rice, in particular, while announcing the ‘reciprocal tariff’ plan in April 2025 (https://bit. ly/4×2PNFS). The U.S. seems to have secured India’s agricultural market when the Interim Agreement was announced in February 2026. The U.S. Agriculture Secretary Brooke Rollins thanked the U.S. President for “delivering for … American farmers” and added that the “new U.S.-India deal will export more American farm products to India’s massive market, lifting prices, and pumping cash into rural America” (https://bit.ly/4pNEJdr). Bartering away India’s agricultural market to the U.S. agri-business would threaten farmers’ livelihoods and food security, both at the level of farm households and the country. In the 1960s, India overcame its dependence on the U.S. for food grains, mainly wheat, through the adoption of the policy of food self-sufficiency. The BTA threatens to jeopardise India’s food self-sufficiency, which was won after sustained struggle, and make the country food import-dependent once again after six decades.
A typical FTA includes sensitive issues such as intellectual property rights, and the BTA is no exception. For nearly four decades, the U.S. has exerted pressure on India to amend its intellectual property (IP) laws using USTR’s annual Special 301 investigations (the reports can be accessed here: https://bit.ly/3RA3BZz) for failing to “provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers”. In the Special 301 investigations, the public interest provisions included in India’s Patents Act have been systematically targeted. These provisions have been used to develop and strengthen India’s pharmaceutical industry, which has been producing cheap generic medicines, benefiting not only the country’s citizens but also those of other countries, including the United States. Several large generic pharmaceutical manufacturers have consistently exported a large share of their sales.
When a trade agreement puts India’s food and health security at serious risk, is it worth pursuing?
Notes
[1] President Trump had imposed a ‘reciprocal tariff’ on 57 countries, including India, using the provisions of the International Emergency Economic Powers Act of 1977 (IEEPA). India initially faced a ‘reciprocal tariff’ of 25%, which the Interim Agreement reduced to 18%.
Biswajit Dhar is a development economist and former professor at Jawaharlal Nehru University, New Delhi.
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