India and Trump are haggling over the same constituency
Donald Trump
had temporarily reduced the tariff rate for most countries to 10% to allow time for negotiations through July 9.
An announcement on the trade deal is expected no later than the midnight of July 4-5, as per an ET report based on information from people in the know. The deal could be unveiled in phases. For days, there appeared to be a stalemate in the trade talks, with India hardening its position on offering duty concessions on agricultural products. What has been holding up the trade talks is the same interest group that matters to India as well as the US -- the farmers. The US has been pushing its agriculture and dairy products to promote its farmers, a politically powerful section in the US, while India has been resisting offering tariff concessions on these goods to protect its farmers from low-priced American agriculture and dairy products flooding the Indian market which can drastically bring down prices, thus harming Indian farmers.
American farmers, an influential political bloc
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Trade negotiations are rarely just about economics. They are deeply entangled with domestic political imperatives. In the US-India trade talks under the Trump administration, one of the key undercurrents is the political weight of American farmers. Trump, elected in part due to strong support from rural America, has prioritised the interests of the US agricultural and dairy sectors in trade policy. His administration's push for greater market access to India for American agricultural and dairy products is not merely an economic strategy. It's a calculated political move shaped by the influence of the powerful farm lobby.
American farmers, particularly those in the Midwest, represent a formidable political force. They are a critical part of Trump's base, having overwhelmingly supported him in the 2016 and 2020 elections. These regions hold significant sway in shaping the national conversation on trade and rural development.
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Why are farm goods holding up the India-US trade deal?
America's most farming-dependent counties overwhelmingly backed Trump in last year's election by an average of 77.7%, as per independent news outlet, Investigate Midwest. Not only did Trump increase his support among farming-dependent counties, but more than 100 of those counties supported him with at least 80% of their vote. In a speech before Congress in march, Trump said that his new trade policies would "be great for the American farmer" even as he acknowledged that there "may be a little bit of an adjustment period." "Our farmers are going to have a field day right now," Trump said. He also claimed that farmers could compensate for any losses by selling more domestically. "Nobody is going to be able to compete with you," he said enthusiastically.
Over the years, American farmers have grown increasingly dependent on exports due to domestic overproduction and changing consumption patterns. Major agricultural states like Iowa, Wisconsin and Nebraska rely heavily on foreign markets for commodities such as soybeans, corn, dairy and meat. Therefore, securing new or expanded trade deals that boost agricultural exports directly serves both the economic interests of these states and Trump's political interest.
During Trump's previous term, government payments to farmers rose to historic levels as the Trump administration handed out cash to farmers to compensate for the financial losses from his tariff wars
India is worried about its own farmers
India's own political and economic considerations -- protecting its domestic farmers, adhering to food safety norms and maintaining strategic autonomy -- clash with American demands for duty concessions on agricultural and dairy products. Agriculture and its allied areas contribute just 16% to India's $3.9 trillion economy, but sustain nearly half of the country's 1.4 billion population. As farmers remain the most powerful voting bloc, Prime Minister Narendra Modi's government was forced into a rare retreat four years ago when it tried to push through controversial farm laws.
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The prospect of cheaper imports from the United States threatens to drive down local prices, handing the opposition a fresh opportunity to attack the government. New Delhi has traditionally kept agriculture out of Free Trade Agreements with other nations. Granting market access to the US could force India to extend similar concessions to other trading partners. The average Indian farm comprises just 1.08 hectares, compared to 187 hectares in the United States. In dairy, the average herd size in India is two to three animals per farmer, compared to hundreds in the US. This difference makes it difficult for small Indian farmers to compete with their U.S. counterparts.
The US is pressing India to open its markets to a wide range of American products, including dairy, poultry, corn, soybeans, rice, wheat, ethanol, citrus fruits, almonds, pecans, apples, grapes, canned peaches, chocolates, cookies, and frozen French fries. While India is willing to grant greater access to US dry fruits and apples, it is holding back on allowing imports of corn, soybeans, wheat, and dairy products. India does not allow genetically modified (GM) food crops, while most US corn and soybean production is GM-based. Dairy remains a sensitive issue in India, where cultural and dietary preferences strongly influence food choices. Indian consumers are particularly concerned that cattle in the US are often fed with animal by-products, a practice that conflicts with Indian food habits.
The Global Trade Research Initiative (GTRI) has cautioned that permanent reduction of agricultural tariffs in the India-US free trade agreement could result in subsidised US grains overwhelming Indian markets during global price downturns. Historical evidence shows that global grain prices plummeted between 2014 and 2016, with wheat prices falling under $160 per tonne, devastating African farmers. "India must retain policy space to manage food stocks, support rural incomes, and respond to global shocks. In today's geopolitically unstable world, food security must remain sovereign," GTRI Founder Ajay Srivastava was quoted as saying by PTI.
At present, the government doesn't allow cultivation of GM food crops, even though varieties can aid yields. The commercial release of GM mustard has been stalled due to a legal challenge in the country's top court, and in 2010, the government rejected a GM variety of brinjal. Still, India already meets about 60% of vegetable-oil demand through imports, including soy and canola oils from GM crops. The country is also the second-largest cotton grower, with more than 90% of that crop genetically modified.
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The way out of the deadlock
While India remains firm on not giving concessions in market access in the sensitive dairy and agricultural sectors, India is looking to allow imports of certain GM-based farm products used in animal feed, ET has reported based on information from sources. Talks on the deal are nearing conclusion with some last minute fine-tuning, a person privy to the development told ET, adding it could be announced well before the July 9 deadline when the US government's moratorium on reciprocal tariffs ends. "Sensitive agriculture and dairy products are out of the deal. There could be some farm products such as apples where limited concessions are being worked out," said an official, adding that concessions for US-made automobiles are high on priority list.
India may agree to inbound shipments of some products used in animal feeds, such as soybean meal and distillers dried grains with solubles, a byproduct of corn-based ethanol production, people familiar with the matter, who asked not be identified as the information isn't public, told Bloomberg.
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