As the long-awaited India-US trade agreement was officially announced on Monday, marking a significant reduction in tariff rates from the previously imposed 50 percent to a more manageable 18 percent, a detailed examination reveals the profound influence of the Trump administration on shaping bilateral trade relations. The journey toward this pact, which began with formal negotiations in February, has been characterized by strategic adjustments and policy recalibrations on both sides.
The Trump Factor in India-US Trade Dynamics
Even before assuming office earlier this year, US President Donald Trump consistently highlighted the substantial goods trade deficit between India and the United States as a primary concern. This focus set the stage for a series of developments that would ultimately narrow the trade gap and pave the way for the recent deal.
Shrinking Trade Surplus: A Data-Driven Perspective
Recent data released by India's Commerce and Industry Ministry illustrates a notable contraction in the goods trade surplus with the US. The surplus has nearly halved, declining from $3.17 billion in April to $1.73 billion by November. This reduction is attributed to a combination of decreased exports to the US and a simultaneous increase in imports from the American market.
The imposition of 50 percent tariffs by the US, effective from August 27, triggered a steep decline in Indian exports, particularly affecting labor-intensive sectors such as garments, footwear, and sports goods. Exports to the US fell from $6.86 billion in August to $6.30 billion in October. Conversely, imports from the US rose from $3.60 billion to $4.84 billion during the same period, reflecting India's strategic response to mitigate trade tensions.
Energy Trade Shifts: US Gains, Russia Declines
Amidst these changes, India has significantly boosted its crude oil imports from the United States. The US share in India's oil imports surged to 7.48 percent between April and October this year, up from 4.43 percent in the comparable period last year. This shift coincides with Washington's sanctions on Russian oil companies Lukoil and Rosneft, which contributed to a decline in Russia's share of India's oil imports from 37.88 percent to 32.18 percent.
Furthermore, Indian public sector refiners secured a one-year deal for American liquefied petroleum gas (LPG) imports, adding approximately 2.2 million tonnes per annum. The US has also emerged as a key supplier of liquefied natural gas (LNG) to India, reinforcing its position in the energy trade landscape.
Domestic Policy Reforms and Diversification Efforts
The uncertainty surrounding the trade deal prompted India to undertake swift domestic reforms and diversify its trade partnerships. The government rolled back several quality control orders that impacted the competitiveness of micro, small, and medium enterprises (MSMEs). Additionally, an 11 percent duty on cotton was removed to alleviate pressure on the textile value chain, which was adversely affected by US tariffs.
In a bid to reduce dependency on any single market, India intensified efforts to forge trade agreements with other major economies. Negotiations were concluded with New Zealand, and a deal was signed with Oman. Ongoing discussions with the Gulf Cooperation Council (GCC) and the Russia-led Eurasian Economic Union (EAEU) underscore India's commitment to broadening its trade horizons.
Nuclear Sector Opening and Strategic Adjustments
Aligning with the Trump administration's advocacy for nuclear energy expansion, India has opened its nuclear sector to foreign investments. This move, coupled with the push for developing small-scale reactors, reflects a broader strategy to enhance energy security and technological collaboration.
The interplay of tariffs, trade data, and policy shifts underscores how the Trump administration's approach fundamentally influenced India's trade strategy in the lead-up to the pact. The narrowing trade surplus, increased energy imports from the US, and domestic reforms collectively highlight the adaptive measures taken by India to navigate a complex trade environment and secure a mutually beneficial agreement.
