Racing against the clock: Why US, India can't miss window for a trade deal
USISPF Commentary
HomeUSISPF CommentaryRacing against the clock: Why US, India can’t miss window for a trade deal
Racing against the clock: Why US, India can’t miss window for a trade deal
Originally Published in:
| 09 June 2025
Originally Published in:
| 09 June 2025
Share:
The negotiation is unfolding in real time. The US is using tariffs as leverage; India, for its part, is signalling unusual flexibility
Time is running out for Washington and New Delhi. On July 9, a 90-day pause on new U.S. tariffs will expire, ending a brief truce meant to enable a limited trade deal. In April, President Trump announced two steep tariffs: a 10% universal tariff on all imports and a 16% reciprocal tariff targeting Indian goods. While the U.S. temporarily suspended the latter to allow negotiations, that window is quickly closing.
The negotiation is unfolding in real time. The United States is using tariffs as leverage; India, for its part, is signaling unusual flexibility. More than just market access is on the table—what’s at stake is the future of economic cooperation between the world’s largest and fifth-largest economies. A U.S. delegation, led by AUSTR Brendan Lynch, is currently in New Delhi the next round of discussions —part of its effort to strike a deal before the 90-day pause expires. As Secretary of Commerce, Howard Lutnick noted during USISPF’s Annual Leadership Summit in Washington, “You should expect a deal between the United States and India in the not-too-distant future because I think we found a place that really works for both countries.”
What makes these negotiations extraordinary is how far India has been willing to go to meet U.S. concerns. New Delhi has put a bold offer on the table: slashing tariffs to near zero on a wide array of non-agricultural goods imported from the U.S. These cuts are offered preferentially to the U.S. alone, not to all WTO partners. Such sweeping tariff cuts—from a country traditionally known for high trade barriers—are rare outside full free trade agreements.
Why make such a generous offer? Because the alternative is stark. Without an interim deal, Indian exports could face 26% tariffs. Given the U.S. is India’s largest export market, millions of Indian jobs hang in the balance. A tariff spike would force manufacturers to absorb the cost or raise prices, hurting competitiveness and demand—a painful prospect for India’s economy.
India’s ask is straightforward: shield its exports from these new tariffs. Specifically, India seeks a guarantee that the U.S. will not impose the 16% reciprocal tariff and ideally an exemption from the 10% universal tariff. It’s a simple notion of reciprocity: India is offering near-duty-free access and expects similar treatment in return.
The UK-U.S. Tariff Deal’s Cautionary Tale
As Washington and New Delhi work toward a deal, the recent U.S.-UK agreement offers both a blueprint and a caution. Weeks ago, the U.K. struck a mini deal with the Trump administration under similar pressure. London moved quickly and secured partial relief: the White House offered tariff-rate quotas on metals and autos and outlined a path to phase out steel and aluminum tariffs through a new “trading union.”
Author
Mark Linscott
Former Assistant U.S. Trade Representative and Senior Advisor – Trade at USISPF
Anushka Shah
Anushka Shah, Manager – Trade Policy and Emerging & Critical Technologies at USISPF
However, Britain did not get an exemption from the 10% universal tariff. From Washington’s view, the UK deal fit within the President’s “America First” strategy: friendly, but firm.
India’s case differs in two ways. First, New Delhi is offering far more upfront—near-zero tariffs across a broad range of goods and commitments on non-tariff barriers. Second, Prime Minister Modi cannot afford a one-sided deal. Opening India’s market while still facing U.S. tariffs would invite backlash at home.
What happens next will shape not only bilateral trade but the tone of U.S.-India economic diplomacy for years. Three scenarios are possible:
Scenario 1
Exemption from the 16% Reciprocal Tariff Only In this outcome, the U.S. drops the 16% tariff but retains the 10% universal tariff. For India, this isn’t a collapse—particularly if other Asian exporters, such as Vietnam, fail to secure similar exemptions. Still, Indian goods would become 10% more expensive, hurting price-sensitive sectors. For Washington, India’s sweeping tariff cuts would open access to a $3.7 trillion economy. But the optics for New Delhi are tricky: liberalizing access for U.S. goods while still facing new barriers is a tough sell. “Half a loaf” avoids a trade war but comes at a domestic political cost.
Scenario 2
Exemption from Both 16% and 10% Tariffs This is the ideal outcome for India and a goodwill gesture from Washington. The U.S. exempts India from both tariffs, effectively carving it out of a policy not waived even for the U.K. Indian goods retain near-zero duties in the U.S., and U.S. goods gain significant access to India’s market—a clear win for both.
Crucially, this would show strategic trust: that Washington can adjust its global tariff policy for a key partner and that India is willing to liberalize in return. If the political will exists, this interim deal could lay the groundwork for a broader Bilateral Trade Agreement. This scenario is ambitious—carving out one country from a “universal” tariff is a big ask—but India’s strategic value and bold concessions merit serious consideration.
Scenario 3
India Matches the 10% Tariff — A Shift Toward Reciprocity Here, the U.S. exempts India from the 16% tariff but retains the 10% universal duty. Indian exports become 10% more expensive, straining already thin margins. India may walk back its zero-tariff offer and impose reciprocal 10% duties on U.S. goods. Politically, this is more palatable: India avoids appearing overly conciliatory while keeping talks alive. U.S. exporters, however, lose a rare opening in India.
If this is the outcome, India should prioritize resolution of the 10% tariff in the next negotiation phase, aiming to address it by fall 2025 when the first tranche of the broader BTA is expected.
Section 232 Investigations: The Other Wild Card
Beyond these talks, India must prepare for the outcomes of seven pending Section 232 investigations—including pharmaceuticals, one of its top export sectors. The U.K., in its recent deal, secured relief on some 232 tariffs through negotiated quotas and carve-outs. India should pursue similar engagement once decisions are announced.
Any interim agreement should include a mechanism for India to resolve 232 measures case-by-case, particularly where supply chain interdependence is critical.
The Road Ahead
Prime Minister Modi’s choice to prioritize dialogue over retaliation when Trump’s tariffs were first announced created space for diplomacy. Rewarding that choice now would validate India’s faith in negotiation and lay a stronger foundation for a future agreement.
By fall, both governments aim to conclude the first tranche of the BTA, bringing tougher issues—from digital trade to agriculture—into focus. If India doesn’t secure tariff relief now, it should press for it then. To meet the shared $500 billion trade goal by 2030, both sides must commit to dismantling structural barriers like the 10% universal tariff.
The clock is ticking. India has made bold offers. The U.S. has paused penalties. It’s time to turn that momentum into a deal that is fair, forward-looking, and strategically sound. With just weeks left, “yes” isn’t just possible—it’s essential.
USISPF Commentary
Racing against the clock: Why US, India can’t miss window for a trade deal
Originally Published in:
| 09 June 2025
Originally Published in:
| 09 June 2025
Share:
Time is running out for Washington and New Delhi. On July 9, a 90-day pause on new U.S. tariffs will expire, ending a brief truce meant to enable a limited trade deal. In April, President Trump announced two steep tariffs: a 10% universal tariff on all imports and a 16% reciprocal tariff targeting Indian goods. While the U.S. temporarily suspended the latter to allow negotiations, that window is quickly closing.
The negotiation is unfolding in real time. The United States is using tariffs as leverage; India, for its part, is signaling unusual flexibility. More than just market access is on the table—what’s at stake is the future of economic cooperation between the world’s largest and fifth-largest economies. A U.S. delegation, led by AUSTR Brendan Lynch, is currently in New Delhi the next round of discussions —part of its effort to strike a deal before the 90-day pause expires. As Secretary of Commerce, Howard Lutnick noted during USISPF’s Annual Leadership Summit in Washington, “You should expect a deal between the United States and India in the not-too-distant future because I think we found a place that really works for both countries.”
What makes these negotiations extraordinary is how far India has been willing to go to meet U.S. concerns. New Delhi has put a bold offer on the table: slashing tariffs to near zero on a wide array of non-agricultural goods imported from the U.S. These cuts are offered preferentially to the U.S. alone, not to all WTO partners. Such sweeping tariff cuts—from a country traditionally known for high trade barriers—are rare outside full free trade agreements.
Why make such a generous offer? Because the alternative is stark. Without an interim deal, Indian exports could face 26% tariffs. Given the U.S. is India’s largest export market, millions of Indian jobs hang in the balance. A tariff spike would force manufacturers to absorb the cost or raise prices, hurting competitiveness and demand—a painful prospect for India’s economy.
India’s ask is straightforward: shield its exports from these new tariffs. Specifically, India seeks a guarantee that the U.S. will not impose the 16% reciprocal tariff and ideally an exemption from the 10% universal tariff. It’s a simple notion of reciprocity: India is offering near-duty-free access and expects similar treatment in return.
The UK-U.S. Tariff Deal’s Cautionary Tale
As Washington and New Delhi work toward a deal, the recent U.S.-UK agreement offers both a blueprint and a caution. Weeks ago, the U.K. struck a mini deal with the Trump administration under similar pressure. London moved quickly and secured partial relief: the White House offered tariff-rate quotas on metals and autos and outlined a path to phase out steel and aluminum tariffs through a new “trading union.”
Author
Mark Linscott
Former Assistant U.S. Trade Representative and Senior Advisor – Trade at USISPF
Anushka Shah
Anushka Shah, Manager – Trade Policy and Emerging & Critical Technologies at USISPF
However, Britain did not get an exemption from the 10% universal tariff. From Washington’s view, the UK deal fit within the President’s “America First” strategy: friendly, but firm.
India’s case differs in two ways. First, New Delhi is offering far more upfront—near-zero tariffs across a broad range of goods and commitments on non-tariff barriers. Second, Prime Minister Modi cannot afford a one-sided deal. Opening India’s market while still facing U.S. tariffs would invite backlash at home.
What happens next will shape not only bilateral trade but the tone of U.S.-India economic diplomacy for years. Three scenarios are possible:
Scenario 1
Exemption from the 16% Reciprocal Tariff Only In this outcome, the U.S. drops the 16% tariff but retains the 10% universal tariff. For India, this isn’t a collapse—particularly if other Asian exporters, such as Vietnam, fail to secure similar exemptions. Still, Indian goods would become 10% more expensive, hurting price-sensitive sectors. For Washington, India’s sweeping tariff cuts would open access to a $3.7 trillion economy. But the optics for New Delhi are tricky: liberalizing access for U.S. goods while still facing new barriers is a tough sell. “Half a loaf” avoids a trade war but comes at a domestic political cost.
Scenario 2
Exemption from Both 16% and 10% Tariffs This is the ideal outcome for India and a goodwill gesture from Washington. The U.S. exempts India from both tariffs, effectively carving it out of a policy not waived even for the U.K. Indian goods retain near-zero duties in the U.S., and U.S. goods gain significant access to India’s market—a clear win for both.
Crucially, this would show strategic trust: that Washington can adjust its global tariff policy for a key partner and that India is willing to liberalize in return. If the political will exists, this interim deal could lay the groundwork for a broader Bilateral Trade Agreement. This scenario is ambitious—carving out one country from a “universal” tariff is a big ask—but India’s strategic value and bold concessions merit serious consideration.
Scenario 3
India Matches the 10% Tariff — A Shift Toward Reciprocity Here, the U.S. exempts India from the 16% tariff but retains the 10% universal duty. Indian exports become 10% more expensive, straining already thin margins. India may walk back its zero-tariff offer and impose reciprocal 10% duties on U.S. goods. Politically, this is more palatable: India avoids appearing overly conciliatory while keeping talks alive. U.S. exporters, however, lose a rare opening in India.
If this is the outcome, India should prioritize resolution of the 10% tariff in the next negotiation phase, aiming to address it by fall 2025 when the first tranche of the broader BTA is expected.
Section 232 Investigations: The Other Wild Card
Beyond these talks, India must prepare for the outcomes of seven pending Section 232 investigations—including pharmaceuticals, one of its top export sectors. The U.K., in its recent deal, secured relief on some 232 tariffs through negotiated quotas and carve-outs. India should pursue similar engagement once decisions are announced.
Any interim agreement should include a mechanism for India to resolve 232 measures case-by-case, particularly where supply chain interdependence is critical.
The Road Ahead
Prime Minister Modi’s choice to prioritize dialogue over retaliation when Trump’s tariffs were first announced created space for diplomacy. Rewarding that choice now would validate India’s faith in negotiation and lay a stronger foundation for a future agreement.
By fall, both governments aim to conclude the first tranche of the BTA, bringing tougher issues—from digital trade to agriculture—into focus. If India doesn’t secure tariff relief now, it should press for it then. To meet the shared $500 billion trade goal by 2030, both sides must commit to dismantling structural barriers like the 10% universal tariff.
The clock is ticking. India has made bold offers. The U.S. has paused penalties. It’s time to turn that momentum into a deal that is fair, forward-looking, and strategically sound. With just weeks left, “yes” isn’t just possible—it’s essential.