India inches closer to historic US trade deal, can Modi dodge Trump's 26% tariff threat?

Economic Times

19 hours ago

Credit where credit is due. Indian trade negotiators have persevered and survived in a tough environment of tariff threats from Donald Trump and rapid-fire letters spitting out of the White House.Indian strategy: stay calm and carry on. Bring a good ground game, prevent oversimplification of issues, and insist on fairness. An interim India-US trade deal appears tantalisingly close, which, when announced, should remove the sword of 26% tariffs hanging over India. It will be a subset of the 'first tranche' of a BTA that both agreed to complete by fall.
Rajesh Agarwal, India's chief negotiator, is here to give the finishing touches but not to make an announcement. That right belongs to Trump. 'Many of us were expecting an announcement two weeks ago. It's impossible to assess what the president's going to do, what his calculus is,' Mark Linscott, a former US trade official, told me. Could the timing be related to trade talks with Pakistan and a desire to make a joint announcement? 'It would not be productive. The India agreement is historic,' said Linscott.Trump extended the July 9 deadline to August 1, possibly for two reasons - first, negotiations with some countries, including India, were at an advanced stage, and second, he needed to show results. A 'win' in a sea of threats would affirm that his mad strategy is working.Negotiations with India have been substantive, with a focus on the long- term trade trajectory. Flexibility is the name of the game. If you are starting with a $45 bn trade surplus, some front-loading of benefits to the US can be digested. The main objective is to avoid the 26% tariffs Trump threatened and protect Indian exports.What's being finalised would be an interim agreement, which will lead to more detailed discussions on a legal text, which, in turn, would lead to the 'first tranche' of an unprecedented deal and later to a possible second tranche. Neither side has travelled so far so quickly, or held as many meetings and video conferences before.Indian negotiators are charged up. Sometimes, Delhi has had to wait for DC to respond, belying old beliefs that Indians move slowly, if at all.The US wants more market access for industrial goods, apples, wines, alfalfa hay, soyabean, maize and dairy products. India is open to some, but GMO foods and dairy are red lines - one is banned under law, and the other could spark riots because American cows are fed a non-veg diet. Officials will likely set the most contentious issues for later.India wants lower tariffs on its labour-intensive exports, from leather products to garments to textiles to gems and jewellery. Greater market access for pharma and electronics would be good, too, and while you are at it, don't forget to lower US tariffs on steel, aluminium and auto parts.Then there are differences on 'standards' - whose standards are right, and should one country automatically accept another's? How do you position your objections? How do you simplify/harmonise the two regulatory structures? The word 'complex' doesn't do justice to the nature of discussions, the pushing and pulling, the stretching of limits, and making the right judgements while weighing the politics of it all.India is on the cusp of something positive in a challenging landscape where every day springs a surprise, often a nasty one. US negotiators have kept everything close to their chest - even their companies don't know the direction of the winds.It's all part of the strategy of unpredictability - now fully grown from its nascency in Trump 1.0. The letter bombs dropped on Japan, South Korea, Laos, Bangladesh and even Myanmar, are nothing but a pressure campaign to shock them into submission. A letter doesn't mean Trump won't do a trade deal - a Bangladeshi delegation is already here asking for relief.As for Senator Lindsey Graham's bill, which proposes 500% tariffs on countries that buy Russian oil, gas, uranium and petrochemical products, it does allow Trump to waive those tariffs for 180 days on national security grounds. A newer version - still secret - is expected to expand Trump's ability to grant waivers.Whether the bill is pushed in the US Congress will depend on how talks with Russia progress, or don't. Both Dems and Rs are united in their desire to punish Moscow. India, as a major buyer of Russian oil, will have a problem on hand unless given a waiver. Diplomatic efforts are underway to sensitise Graham and his staff to India's need for energy security.Bottomline: If the bill becomes law, global oil prices will likely rise, which means higher prices for Americans at the gas pump. That won't be good news for Trump.
But an interim trade agreement with India would be.
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