Why India has an incentive to act tough in Trump trade talks

Economic Times

a day ago

Agencies Prime Minister Narendra Modi and US President Donald Trump
The ongoing trade dispute between the United States and China, two of the world's most powerful nations, could present India with a crucial opportunity to finalize its own trade deal with the US before the 90-day reciprocal tariff deadline. As India and the United States engage in intense negotiations, Swaminathan Aiyar, Consulting Editor at ET Now, believes that India has the potential to be a strong negotiator, much like its neighbor China, and secure a favorable deal for itself. "The Chinese stood up, when Trump increased the import by 125%, so did they and ultimately Trump had to back down on that and has backed down on various things. So, on the one hand this means that some kind of deals are definitely more possible. It also means that every country including India we have an incentive not to give way very easily," said Aiyar. Aiyar explained that India has an incentive by bringing up how China stood up against the wishes of US, and was rewarded. "If all of us stand up, then we have this guy who from being a dragon now is beginning to chicken out on various deals, so let us talk tough, let us act tough. So that is the global position right now. For the very fact that the Americans say they are willing to ease the restrictions on high-end chips in return for the rare earths is a sign of chickening out in a big way," said Aiyar. "As I said, we all have an incentive now to act tough because Mr Trump is very keen on reaching deals with the major countries before the 90-day deadline. Let us see what happens. As I said, I would look for last minute developments rather than anything right now despite the talks in London," added Aiyar.
Both sides are looking at an interim trade deal before the first tranche of the proposed bilateral trade agreement (BTA) as the USA's 26 per cent reciprocal tariff on India is suspended till July 9 this year. It was imposed by the US on April 2. However, Indian goods still attract the 10 per cent baseline tariff imposed by America.
India, US remain 'optimistic'
Recently, US Commerce Secretary Howard Lutnick said he's 'very optimistic' about prospects for a trade deal between the US and India, suggesting an agreement could come before a July deadline for higher tariffs. The same sentiment was shared by Union Commerce Minister Piyush Goyal. According to a recent report by the finance ministry, a successful US-India bilateral trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports. The possible optimism is seen with the US trade team that's currently in India for negotiations has extended its stay, reported Bloomberg quoting its sources, in a sign talks are progressing ahead of a July deadline. India and the US are working on a phased trade deal with an early agreement targeted for July, the deadline for implementation of the so-called reciprocal tariffs. At the same time, those tariffs are facing legal challenges in Washington.While Indian officials say talks remain on track, there have been signs of tension in recent days. New Delhi appears to be adopting a tougher stance in negotiations, threatening retaliatory tariffs on US goods last week. Trump has also claimed that India offered to slash tariffs on US goods to zero, while downplaying any sense of urgency to reach a trade deal.
What are India, US hoping from the trade deal?
The US remained India's largest trading partner for the fourth consecutive year in 2024-25, with bilateral trade valued at $131.84 billion. The US accounts for about 18 per cent of India's total goods exports, 6.22 per cent in imports, and 10.73 per cent in the country's total merchandise trade. With America, India had a trade surplus of $41.18 billion in goods in 2024-25. The two trading partners look to more than double bilateral trade to $500 billion by 2030.To boost bilateral trade, India is seeking duty concessions for labour-intensive sectors like textiles, gems and jewellery, leather goods, garments, plastics, chemicals, shrimp, oil seeds, chemicals, grapes, and bananas in the proposed pact with America. On the other hand, the US wants duty concessions in sectors like certain industrial goods, automobiles (electric vehicles in particular), wines, petrochemical products, dairy, and agriculture items such as apples, tree nuts and GM (genetically modified) crops. While the import of GM crops from the US continues to remain a non-starter due to regulatory norms in India, New Delhi is open to import non-GM products like Alpha alpha hay (a kind of cattle feed).On April 10, the United States temporarily suspended additional tariffs on Indian exports for a 90-day period, effective until July 9. The pause was seen as a goodwill gesture and an effort to build momentum in trade discussions. This development followed a broader tariff overhaul on April 2, when the US imposed universal duties on imports from nearly 60 countries in a bid to reduce the American trade deficit and strengthen domestic production. As part of that move, Indian exports were slapped with an additional 26% duty—covering sectors ranging from seafood to industrial metals like steel.