Why India Should Reject U.S. Demands in BTA Negotiations
The executive orders signed by U.S. President Donald Trump last week to levy a 25 percent tariff on India, coupled with an additional 25 percent tariff announced on 6 August for its purchases of Russian oil, have posed new hurdles to the ongoing fast-track negotiations on an India-U.S. bilateral trade agreement (BTA).
The additional 25 percent tariff, which will come into effect from 27 August if India continues to buy oil from Russia, will effectively bring the total tariff on India to 50 percent. In tariff rankings, India now shares the top position with Brazil, followed by Switzerland at 39 percent, and China at 30 percent. The Indian Foreign Ministry called Trump’s latest order “extremely unfortunate”.
While the initial 25 percent tariff will come into effect on 7 August, Trump has offered a 21-day window for India to negotiate on the additional 25 percent tariff. Both executive orders should serve as a wake-up call for New Delhi, which has largely bet on bonhomie and warm chemistry between Prime Minister Modi and President Trump to overcome any trade frictions. True to his bullying transactional approach to diplomacy, Trump’s tariff threats are bargaining tools to extract maximum benefits from the ongoing BTA negotiations with India.
Instead of pacifying Trump, New Delhi should recognise that any attempt to show further weakness or appeasement will invite further demands from his administration. Being a businessman for most of his life, Trump understands cost-benefit analyses very well, and therefore, he may only resist imposing tariffs and other coercive measures on India (and other countries) once he knows that the costs will far outweigh the benefits.
Rather than passively accepting new unilateral tariffs on its exports to the U.S., India should respond with retaliatory tariffs on American imports while the BTA talks are on. Retaliatory tariffs can restore a legitimate trade equilibrium between India and the United States.
Elusive Trade Deal
An India-U.S. bilateral trade agreement (even a “mini” deal) has remained elusive, despite New Delhi strengthening economic and strategic ties with Washington in the last two decades. Major points of disagreement on the trade agreement revolve around tariffs, market access, and trade practices.
To resolve these long-pending issues and deepen economic ties, the proposed BTA is expected to cover a wide range of issues, including tariff reductions, market access, service liberalisation, digital trade, government procurement, intellectual property rights (IPR), and investment rules.
Although the idea of an India-U.S. BTA is not new, it gained impetus in 2010 when Anand Sharma, the commerce minister at the time, urged both countries to seriously engage in negotiating a comprehensive economic partnership agreement (CEPA). Due to major differences in agriculture, pharma, IPR, and investment rules, no formal negotiations for a BTA could begin in the early to mid-2010s. Thereafter, the political climate in Washington turned against negotiating comprehensive free trade agreements that would increase market access to the U.S. market. Both countries tried to reach a “mini” trade deal in 2020, but Trump was voted out in the 2020 presidential election. The protectionist trade agenda launched by the first Trump administration continued under the Biden administration, which sought to develop a “worker-centered trade policy” to address domestic concerns over the impact of market openings on American workers. Therefore, the entire political establishment in the U.S. was unwilling to offer India (or any trading partner) further access to its market.
In the 2010s, India and the United States held several rounds of discussions toward signing a standalone high-standard bilateral investment treaty (BIT), but no progress was made.
India was the first country to initiate BTA talks with the U.S., days before the announcement of the reciprocal tariffs by the Trump 2.0 administration. Both countries have now held five rounds of fast-track BTA negotiations, which began in March 2025 following Prime Minister Narendra Modi’s February visit to Washington, where both leaders agreed to complete negotiations by the fall of 2025, at least for the first portion of the BTA. The sixth round is scheduled for the end of August.
Beyond Tariffs
Previously, the most contentious trade issues between India and the U.S. were tariffs on agriculture, dairy products, automobiles, and steel. A recent news report by Reuters points out that “New Delhi was offering zero tariffs on industrial goods that formed about 40% of U.S. exports to India”. Another report by Reuters states that “India has offered preferential access to nearly 90% of goods imported from the United States”. However, the Trump administration was seeking much more than a reduction in India’s tariffs on U.S. imports.
While the contours of the ongoing negotiations have not been made public, media reports suggest that the proposed India-U.S. BTA is not confined to tariffs alone.
Several news reports highlighted that Trump was willing to accommodate India’s reluctance on duty-free agricultural imports and dairy products (two highly sensitive sectors, as millions of Indians are dependent on their livelihoods), provided India agreed on legally binding commitments on services, procurement, digital trade, investments (especially easing restrictions in multi-brand retail and the financial sector) and IPR, besides acceding to its key demand of higher energy and defense imports from the United States. As trade negotiations progressed, Trump sought more concessions in the areas of market access, investments, and energy purchases, which India was reluctant to offer.
The Chinese Response
As the U.S.’s traditional allies (the UK, EU, and Japan) have capitulated to Trump’s demands in recently concluded trade deals, it has further emboldened the Trump administration to press for better terms in its ongoing trade negotiations with India and other countries.
Nevertheless, China has shown the world that it cannot be bullied by high tariffs, coercive sanctions, and export restrictions, despite some Chinese exports being greatly impacted in the short term. Not only did China retaliate against U.S. tariffs by implementing its own tariffs, but it also imposed export controls on rare earth minerals, which led to a new round of talks between the two countries. Sometimes, retaliation is needed to demonstrate a country’s firm will to negotiate on equal terms while maintaining mutual respect and decorum.
While China is holding firm in trade negotiations with the U.S., it has simultaneously diversified its exports to the developing world, thereby reducing its dependency on the American and Western markets. Because of its long-term strategic planning coupled with years of preparing for the worst, China is in a much stronger position than the U.S. to withstand Trump’s trade war.
Early evidence suggests that Trump’s aggressive tariff agenda and inward-looking outlook are generating new opportunities for China to expand its global influence, which Washington has up until now sought to prevent. In order to take advantage of the rapidly changing dynamics, Beijing has deepened its engagement with the Global South in a number of areas, including clean technology, infrastructure investment, and mineral supply partnership.
Threat to National Sovereignty
In India, there are strong apprehensions that, in its haste to fulfill the deadlines set by the Trump administration along with his onerous demands, India could undermine its sovereignty, which is defined as its capacity to make independent policy decisions in the best interests of its own citizens.
The proposed BTA could deprive India of the tools and sovereign policy space necessary to protect its economic interests and strategic autonomy, including trade policy, industrial policy, investment priorities, financial stability, and energy independence.
India should negotiate the proposed BTA on its own terms, keeping the public interest in focus. India should retain the sovereign right to enact its own laws and regulations for the benefit of its people within an international trade system with a common set of basic rules and values. Preventing the erosion of India’s sovereignty, national interest, and security are the Indian people’s concerns, and the government should do everything in its power to uphold these.
India can and should strengthen its bilateral trade ties with the United States in a cooperative, trusting, and mutually beneficial environment without ceding sovereignty. A free trade agreement is a means to an end, not an end in itself. No deal is better than a bad one.
India should not sign away its economic sovereignty under the proposed trade deal with onerous binding commitments on goods trade, service liberalisation, investments, and energy purchases. It is well established that economic sovereignty is a prerequisite for political sovereignty and is therefore non-negotiable.
In response to the “America First” trade policy, financial sanctions, and coercive weaponization of international trade, some nations are already looking into ways to collectively maintain their economic sovereignty and transition to a multipolar world. As India has been convening Voice of the Global South Summits since 2023, it should proactively support such efforts at BRICS+ and other fora.
Rethink FTA Strategy
Simultaneously, India should comprehensively review and rethink its FTA strategy, which has recently shifted towards negotiating bilateral trade agreements with the developed world, putting onerous demands on its domestic policy space. This review becomes even more important in light of recent data on India’s existing FTAs showing that imports from FTA partners have been growing at a faster pace than exports to the same partners, even for goods such as garments, where India enjoys a comparative advantage.
With the United States and much of the Western world turning protectionist, India should focus on building coalitions of countries in favour of multilateral trade rules while simultaneously exploring alternative markets in the Global South to export its goods and services. Above all, India must prioritise strengthening its domestic economy by boosting private consumption and public investment.
Kavaljit Singh works with Madhyam.
Image courtesy: The White House