US-India trade deal: Six months into President Donald Trump’s second-term tariff offensive, global trade continues to resemble a high-stakes poker game. India, like many other countries, finds itself negotiating under pressure, with the rules constantly in flux. As New Delhi and Washington inch toward a potential trade agreement, the talks are about more than just tariffs—they are about setting terms for market access, digital taxation, pharmaceutical exports, and strategic alignment.
The US has pressed for explicit tax guarantees, specifically a binding clause in the deal that India will not reintroduce the so-called Google tax — a 6% equalisation levy on online advertising services provided by non-resident firms. India scrapped the levy starting April 1, a move widely interpreted as a signal of goodwill. But American negotiators are demanding further assurance that it won’t be revived, a demand India is resisting.
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Government officials insist that tax sovereignty is not negotiable, underlining that India has historically avoided making fiscal commitments under trade treaties. Yet, the pressure is real — and growing. Washington’s broader aim is to lock in benefits for its tech majors such as Google, Meta, and X, all of which stand to gain significantly from a digital tax moratorium.
Pharma, steel and sovereignty
India’s ask, meanwhile, is no less urgent. At stake is protection from a looming 200% US tariff on pharmaceutical imports, a threat Trump issued as part of his broader reshoring agenda. The US plan is to start with low tariffs and raise them sharply after a one-year grace period, a move that could destabilise India’s $25 billion pharmaceutical export sector. Indian negotiators are pushing for either a full exemption or a longer timeline to transition.
Similarly, India wants quota-based relief from the 25% US tariffs on steel, aluminium, and automobiles. These sectors have been under strain since the Trump administration invoked national security provisions to justify the levies. Any relaxation would bring significant upside for Indian manufacturers struggling to maintain export competitiveness in these segments.
Tariff arithmetic and sectoral stakes
The main headline issue remains the overall tariff slab that India must accept. Trump had threatened a 27% tariff on Indian goods starting April 2. This was deferred to July 9 and then extended to August 1. Negotiations now revolve around pushing this proposed rate below 20%, with Indian negotiators seeking for under 10%. Realistically, the final deal may settle around 15%, still better than the 19% rate recently accepted by Indonesia or the 20% imposed on Vietnamese goods.
For India, even a 10–15% tariff could deliver a comparative edge. In sectors like electronics, textiles, furniture, auto components, and machinery—where Indian products compete with Chinese and Southeast Asian goods — a favourable tariff differential could shift supply chains. Already, Vietnamese exporters face a flat 20% US duty after their bilateral deal, while China’s wartime tariff has been pared to 30% from a peak of 145%.
The Apparel Export Promotion Council notes that even marginal preferential tariffs could revive India’s declining share in the US garments and home textile market. Manufacturers report that US orders have hit a 14-year high, according to a recent industry survey. Anecdotal evidence from Nomura suggests India is already benefiting from trade diversion, especially in mid-tech sectors like toys, low-end electronics, and consumer durables.
Pitfalls beyond percentages
But tariffs are only one part of the picture. Rules of origin clauses and transhipment restrictions could dilute India’s gains. These technical barriers can disqualify goods from preferential treatment if even minor components are sourced from a third country. For Indian electronics and pharmaceutical exporters—both heavily reliant on imported inputs — this is a serious risk.
Another concern is the fragility of trade shifts. India’s gains are contingent on the persistence of a US-China trade split. Should Trump pivot to another détente with Beijing, the same multinationals that are now eyeing India could revert to Chinese supply chains. Trade analysts warn that a full-scale US-China trade deal could nullify the “China Plus One” diversification strategy.
Digital levies and domestic red lines
The digital tax issue marks another flashpoint. The abolition of the equalisation levy was pitched as a temporary gesture. Embedding a no-revival clause into a formal trade agreement, Indian officials argue, would set a dangerous precedent—especially as global efforts to develop a digital taxation framework remain unresolved under the OECD-G20 Inclusive Framework.
Domestically, India is also unwilling to budge on agricultural and dairy access. These are politically sensitive sectors and any concession would risk backlash ahead of elections. Genetically modified (GM) crops remain off the table for now, with New Delhi seeking to defer the issue to a future, more comprehensive bilateral trade agreement. This approach reflects a broader Indian strategy—secure gains where feasible, and postpone contentious items.
A deal taking shape
The interim deal may settle at a blended tariff rate of up to 15%. On labour-intensive exports — such as apparel, leather, footwear, and gems — India continues to push for sub-10% tariffs. On less sensitive items, it may accept a ceiling of 15%. A senior Indian negotiator described the proposed agreement as “more nuanced than the US-Indonesia model,” signalling greater sectoral tailoring.
Importantly, India wants the entire arrangement to be conditional on the outcome of judicial review in the US. If the Supreme Court overturns Trump’s reciprocal tariff regime and reinstates WTO-consistent MFN rates, India wants the lower rate to apply by default.
US-India trade deal: Time and tide
With the August 1 deadline approaching, an Indian delegation is in Washington for final-stage talks. The window for a strategic breakthrough remains open, but not indefinitely. Any advantage India secures now will depend on how well it manages technical compliance, sectoral positioning, and geopolitical uncertainties.
The external backdrop is shifting. Trump’s floated proposal for a 100% tariff on buyers of Russian oil — and a 10% tariff on BRICS countries — has been dismissed by Indian officials as rhetorical overreach. Yet these illustrate the volatile and transactional nature of current US trade policy. India’s challenge is to extract enduring value from what remains a highly unstable negotiation landscape.
The deal, if concluded on India’s terms, could do more than protect exporters — it could signal that India is capable of hard-headed, sector-smart trade diplomacy. The greater test, however, lies in translating short-term tariff reprieves into long-term structural gains. In the end, it is not the tariff number that will matter, but whether India uses this moment to build export resilience, strengthen domestic value chains, and deepen its trade policy bench.