India's Trade Agreements Face US Tariff Challenge
Economists at Barclays Plc have issued a stark warning about India's trade strategy. They argue that the country's recent flurry of signed and proposed free-trade agreements might not be enough to counter the damaging effects of high US tariffs on Indian exports.
The Scale of the US Tariff Problem
India continues to operate without a formal trade deal with Washington. This situation leaves the country vulnerable to a punishing 50% tariff rate on many exports. These tariffs rank among the highest in the world and have severely impacted India's key labor-intensive industries.
Sectors like textiles, handicrafts, apparel, gems, and leather have taken a heavy blow. The United States represents India's single largest overseas market. Before the tariffs took effect, it accounted for nearly one-fifth of India's total exports.
The uncertainty surrounding a potential US trade deal has created significant pressure. It has weakened the Indian rupee and forced the government to allocate approximately $5 billion to support exporters facing these new barriers.
Limitations of Newer Trade Pacts
In response, India has accelerated negotiations with other global partners, including the European Union. The goal is to lower trade barriers and shed a perceived protectionist image that has long concerned international investors.
However, Barclays economists Aastha Gudwani and Amruta Ghare point out a critical issue. Many of India's newer agreements, such as those with Oman and New Zealand signed last year, involve relatively small trade volumes. "The sheer scale of things doesn't add up," they noted in their recent report.
They provided a clear example. In the electrical machinery sector, the United States is the dominant market. The next three largest partners—the UAE, Netherlands, and the UK—combined do not match the market size that the US alone offers.
The Search for Diversification
India is actively pursuing trade deals to diversify its export markets. Of its top 20 export destinations, India either has an existing free-trade agreement or is actively negotiating one with 16 countries, including the United States. These markets together represent 51% of India's total trade.
Yet, Barclays emphasizes that signing agreements is only the first step. The real challenge lies in converting these pacts into measurable export growth. Success depends on whether the agreements actually strengthen India's domestic industrial base and make its goods more competitive globally.
High Stakes for Key Industries
The report outlines a serious threat. If the 50% US tariffs remain in place, about 70% of India's exports to America could be in jeopardy. Specific sectors identified as most vulnerable include:
- Leather and apparel
- Gems and jewelry
- Home furnishings
- Marine products
Focus Turns to EU Negotiations
Barclays highlights a potential bright spot. A finalized free-trade agreement with the European Union would represent a "big step towards export diversification and greater trade openness with a large bloc."
Expectations are rising as two key European leaders prepare to visit India later this month. European Commission President Ursula von der Leyen and European Council President António Luís Santos da Costa are scheduled for talks. Their visit could signal a breakthrough after years of complex negotiations, potentially bringing the two sides closer to a final agreement.
While India's proactive FTA strategy shows a commitment to global trade, economists caution that the road to recovery from US tariff damage will be long. The success of these agreements will be measured not by their signatures, but by their tangible impact on India's export numbers and industrial resilience.
