As the long-awaited India-US trade deal was announced on Monday, marking a reduction in tariff rates from 50% to 18%, it is crucial to examine the significant influence exerted by the Trump administration on bilateral trade relations. This development follows months of intense negotiations that began in February, with data revealing notable shifts in trade dynamics.
Trade Deficit Concerns and Data Insights
A high goods trade deficit between India and the United States was a primary concern raised by US President Donald Trump even before he assumed office earlier this year. However, recent trade data indicates that India has proactively increased imports from the US, effectively narrowing the trade gap. According to figures shared by the Commerce and Industry Ministry, India's goods trade surplus with the US has nearly halved, dropping to $1.73 billion in November from $3.17 billion in April.
Impact of US Tariffs on Exports and Imports
The imposition of 50% tariffs by the US, which took effect on August 27, led to a steep decline in India's exports to the US. Specifically, exports decreased from $6.86 billion in August to $6.30 billion in October. In contrast, India's imports from the US rose significantly during the same period, from $3.60 billion to $4.84 billion. This decline was most pronounced in labour-intensive sectors such as garments, footwear, and sports goods. Despite this, November saw a 22% jump in India's exports, largely driven by electronic goods that remained unaffected by the tariffs.
Crude Oil Imports and Geopolitical Shifts
Amid these trade tensions, India has steadily increased its crude oil imports from the US. This shift has been influenced by Washington's sanctions on Russian oil companies like Lukoil and Rosneft, which have led to a decline in Russian oil exports to India. Trade data shows that the US's share in India's oil imports surged to 7.48% between April and October this year, compared to 4.43% during the same period last year. Conversely, Russia's share decreased from 37.88% to 32.18%.
LPG Deals and Nuclear Sector Reforms
In addition to crude oil, Indian public sector refiners signed a one-year deal for American liquefied petroleum gas (LPG) imports last year. With LPG imports of around 2.2 million tonnes per annum, this accounts for nearly 10% of India's annual imports. LPG is primarily used as a cooking fuel in India, with significant imports traditionally sourced from countries like Saudi Arabia, the UAE, Qatar, and Kuwait. The US has emerged as the fifth-largest supplier of crude oil and the second-largest supplier of liquefied natural gas (LNG) to India in recent years.
Furthermore, in response to the Trump administration's push for nuclear energy expansion, India has opened its nuclear sector to foreign investments, facilitating the development of small-scale reactors and existing plant expansions.
Policy Reforms and Diversification Efforts
The uncertainty surrounding the trade deal prompted an outflow of investments and a re-examination of India's industrial policy. In recent months, the government has rolled back numerous quality control orders (QCOs) that impacted the competitiveness of MSMEs. Additionally, an 11% duty on cotton was removed to alleviate pressure on the textile value chain due to US tariffs.
Concurrently, India has intensified efforts to diversify its trade partnerships. New Delhi has concluded negotiations with New Zealand, signed a deal with Oman, and is actively engaging in talks with the Gulf Cooperation Council (GCC) and the Russia-led Eurasian Economic Union (EAEU). These moves underscore a strategic push to reduce dependency on any single market and enhance global trade resilience.
