How India can win Trump's trade game
India was among the first countries to enter trade negotiations with the Trump administration. Yet despite nearing an interim deal several times, there has been no breakthrough. And prospects for one have dimmed in recent weeks, with the president first slapping a 25 percent tariff on the country, then threatening further unspecified measures and 'substantially' higher tariffs if India does not stop buying Russian oil.
The key to breaking out of this spiral? Recognizing that the holdup is political and personal, not economic.
With those higher tariffs set to take effect as soon as Wednesday, some of India's most export-dependent industries — including gems, textiles, apparel and crude oil refining — are braced for pain. The pharmaceutical sector, a pillar of India's export economy, is also at risk. The tariffs could shave as much as 0.3 percentage points off India's GDP growth. Worse, they will make India less attractive as a manufacturing hub in a region where competitors such as Bangladesh, Pakistan and Vietnam have already secured more favorable trade terms with Trump.
The mercurial Trump has made no secret of his frustration with the government of Prime Minister Narendra Modi. The original sin stems from the end of fighting between India and Pakistan in May, a welcome development that Trump claimed full credit for. Modi has repeatedly said that India's ceasefire decision was made without foreign influence — without mentioning Trump. That omission, along with India's refusal to halt Russian oil purchases despite U.S. pressure, has hardened Trump's stance. Contrast that with Pakistan's brazen diplomatic flattery, which included nominating Trump for a Nobel Peace Prize.
'The fact that India has been unwilling to publicly acknowledge … the president's role in bringing the India-Pakistan ceasefire to pass has really stuck in Trump's head,' Milan Vaishnav of the Carnegie Endowment told me.
If it hopes to close the deal, India will have to provide Trump with some kind of symbolic 'win.' But Modi needs to tread carefully at home. He could probably close India's refineries to Russian oil without putting India's economy at risk, but acknowledging Trump's role in the ceasefire would be politically disastrous. Modi's carefully cultivated strongman image leaves little room for displays of deference. Opposition leader Rahul Gandhi jibed that Trump said 'Narendra surrender,' and Modi rolled over. A gifted politician, Modi will have to find a way to square that circle.
There are other sweeteners India could offer Trump. Both countries have agreed in principle to increase bilateral trade to $500 billion annually, from the current $190 billion, by 2030. India had promised to slash duties on most U.S. imports, in exchange for a 15 percent tariff on its exports into the United States — a competitive rate compared with Vietnam's 20 percent and Pakistan's 19 percent. India also agreed to increase imports of American natural gas to close its $45.7 billion trade surplus with the U.S.
But Trump is said to have pushed hardest for opening India's agriculture sector, and that's where the domestic politics become truly daunting. Nearly 44 percent of India's workforce depends on agriculture, and Modi is haunted by a year-long farmers' protest in 2020 and 2021 that forced his government to repeal key farm reforms. The Hudson Institute's Aparna Pande told me that Modi may be hoping to push any agriculture concessions past the October elections in the state of Bihar. Expect him to try to hold the line on agriculture while offering concessions elsewhere.
Some possibilities: India could sweeten the deal on pharmaceutical imports, the backbone of the U.S.-India trade relationship, by offering to lower or even eliminate its 10 percent tariff on American pharmaceutical products. It could also pledge to increase purchases of American energy and defense equipment.
On energy, India might eliminate the existing 2.5 percent import duty on American liquefied natural gas — just as it has already done in deals with the United Arab Emirates and Australia. Such a move would not only boost U.S. energy exports but also provide a stark contrast with China, which continues to impose a 15 percent tariff on U.S. gas imports. Opportunities abound on defense as well. Despite long-standing security cooperation with the United States, India has not yet made procurement pledges in this round of negotiations. But during Modi's U.S. visit in February, he announced plans to buy Javelin anti-tank missiles and Stryker combat vehicles, as well as finalize the purchase of P-8I maritime patrol aircraft. Advancing these plans and committing to new defense acquisitions would undoubtedly help to placate Trump.
Navigating Trump's shifting trade demands has proven challenging for Modi. It will be difficult, but not impossible, for him to concede enough without alienating his domestic base. Modi has long made the case to voters that only he could successfully manage India's relationships with great powers. Time for him to prove it.
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