India is reportedly open to reducing tariffs on more than half of the U.S. imports it receives, worth around $23 billion, in an effort to ease tensions and avoid reciprocal tariffs set to take effect from April 2. This proposed move, which marks the biggest reduction in years, is part of ongoing trade discussions between the two nations.
The Indian government is attempting to mitigate the impact of U.S. President Donald Trump’s threatened global tariffs, which are expected to disrupt markets and trigger significant challenges for global trade. These tariffs could affect a large portion of India’s exports to the U.S., valued at $66 billion, with New Delhi estimating that 87% of these exports would be directly impacted.
Sources familiar with the matter told CNBC that India is prepared to substantially lower tariffs on 55% of U.S. goods currently subject to tariffs ranging from 5% to 30%. This would affect U.S. products worth more than $23 billion, with some tariffs possibly being completely eliminated.
The tariff cut is seen as an effort to prevent retaliatory tariffs, but officials have emphasized that the decision is not final, with other options still under discussion. These options include sector-specific tariff adjustments or negotiating on a product-by-product basis, rather than implementing a broad tariff cut.
As negotiations intensify, India is also exploring the possibility of broader tariff reforms, which could reduce barriers uniformly across sectors. However, these discussions are still in the early stages and may not immediately be part of the U.S.-India trade talks.
Tariffs and Trade Deficits
The United States has a trade deficit of $45.6 billion with India, and the average trade-weighted tariff for U.S. imports into India stands at 12%, compared to just 2.2% for U.S. exports. The tariff reduction talks come as the two countries seek to address long-standing trade imbalances and improve their economic relationship.
Prime Minister Narendra Modi’s visit to the U.S. in February helped initiate discussions on a potential trade deal, with both nations expressing an interest in resolving their differences on tariffs. India aims to strike an agreement before the reciprocal tariffs are enacted, and U.S. officials, led by Assistant U.S. Trade Representative for South and Central Asia, Brendan Lynch, are scheduled to participate in trade talks starting Tuesday.
Strategic Considerations and Trade-offs
Indian officials have warned that their willingness to cut tariffs on U.S. imports is contingent upon receiving relief from the reciprocal tariffs threatened by Trump. While the government is considering broader tariff reforms, the political implications of any tariff cuts are significant. The Indian government has drawn red lines around certain sectors, including meat, maize, wheat, and dairy products, where tariffs range from 30% to 60%, which will remain untouched in the current negotiations. However, tariffs on products like almonds, pistachios, oatmeal, and quinoa may be reduced.
One of the most contentious issues in the trade talks is the high tariff on automobiles, which can exceed 100% in some cases. India is looking to push for phased reductions in these automobile tariffs as part of a broader trade deal.
Pressure from Trump Administration
The political sensitivity of the tariff discussions was underscored by comments from Indian trade officials. Sunil Barthwal, India’s trade secretary, told a parliamentary standing committee on March 10 that while India values its trade relationship with the U.S., it would not compromise on its national interests. U.S. Commerce Secretary Howard Lutnick, who is involved in the negotiations, urged India to “think big” after India made tariff cuts on high-end motorcycles and bourbon whiskey earlier this year.
Despite external pressure from the Trump administration, experts suggest that India may not be willing to make sweeping, across-the-board tariff cuts. Milan Vaishnav, an expert on South Asian politics and economics at the Carnegie Endowment for International Peace, remarked that while there is a possibility India might use external pressure to implement politically costly tariff cuts, he does not expect the government to make substantial changes without further negotiation.
The outcome of these trade talks will have significant implications for the economic relationship between the U.S. and India, and could reshape the future of their trade dynamics in the face of escalating global tariff tensions.
