India Rejects Zero Tariffs in US Trade Deal?

Negotiations between India and the United States regarding a potential bilateral trade agreement (BTA) are set to begin, but a complete elimination of tariffs – a “zero-for-zero” approach – appears unlikely, according to sources familiar with the discussions. While both nations aim to finalize the first phase of the agreement by fall and more than double bilateral trade to $500 billion by 2030, fundamental economic differences suggest a broader, package-based deal is more probable than reciprocal tariff elimination across specific product categories.

Currently, the US is India’s largest trading partner, accounting for a significant portion of both exports and imports, and India enjoyed a substantial trade surplus of $35.32 billion in goods with the US in the last fiscal year. However, officials indicate that a “zero-for-zero” strategy, while potentially viable between developed economies like the US and the European Union, isn’t suitable given India’s economic realities and lower per capita income. Maintaining reasonable tariffs remains crucial for protecting certain domestic industries.

Instead of item-by-item parity, negotiators are expected to focus on an overall reduction of tariffs and addressing non-tariff barriers. The agreement will likely encompass a range of issues, rather than mirroring tariff cuts sector by sector.

The US is particularly interested in gaining duty concessions for industrial goods, automobiles (especially electric vehicles), wines, petrochemicals, dairy products, and agricultural items like apples, tree nuts, and alfalfa hay. India, in turn, is seeking tariff reductions for labor-intensive sectors including apparel, textiles, gems and jewelry, leather, plastics, chemicals, oil seeds, shrimp, and horticulture products.

While some trade experts, including the GTRI think tank, have suggested a “zero-for-zero” approach as a way to address US tariff hikes, officials believe this is a misapplication of the strategy. The negotiations, which began in March, are progressing, with India reportedly ahead of other nations in securing a trade deal. The focus remains on a comprehensive agreement that addresses a wide range of trade concerns, rather than a simple, reciprocal elimination of tariffs. This pragmatic approach acknowledges the differing economic landscapes of the two nations and aims for a sustainable, mutually beneficial trade relationship.