India's strategic trade reset with the US: Beyond tariff to critical technology

Time of India

15-05-2025

Manish Kumar Jha is a defence editor and security expert. He is the Sr. Visiting Fellow & Editorial Adviser at the United Services Institution of India. He is a fellow of Oxford University/KPF. He writes on national security, military technology, strategic affairs & policies. LESS ... MORE
The talk over the new trade deal between India and the US must be seen beyond the trade and tariffs. The reduced tariffs, lesser barriers and regulations could be a potential for economies like India to leverage advanced tech, materials, and machines for a greater global supply chain resilience.
In a pivotal move that could redefine India's position in the global economic and technological landscape, Prime Minister Narendra Modi and U.S. President Donald Trump are negotiating a new trade agreement. The agreement has a key element of a technology partnership. Despite the calls for a tariff, which is more in line with a reciprocal tariff, as the Trump administration calls it, it is based on the trade deficit that the US has with many countries, including India.
However, the tariff reduction also means greater trade and technology, as both are trying to raise the bilateral trade from the existing (2024) $129.2 billion to $500 billion by 2030. Will it be a positive mark on the bilateral trade or a drag while it aims to bolster bilateral ties, enhance economic resilience, and supply chain alternatives? For India, it is more about breaking into some real investment in advanced technology, easing the higher investment in R&D and technology transfer, especially in defence.
The recent deal with the UK has given enough indication to gauge some direction on how Trump's administration will deal with India. Recently, the US announced its first 'breakthrough deal' with Britain. It lowers average British tariffs on US goods. Still, it keeps in place the 10% base tariff on British goods, levied by Trump's administration, which hints at the major policy approach under negotiations with other major economies and trading partners.
In February, India and the United States announced plans to complete the initial phase of a trade agreement by autumn 2025, to achieve bilateral trade of $500 billion by 2030. In June, Trump announced a 90-day pause on his long-planned reciprocal tariffs on global trading partners, including a 26% tariff on India, while his administration negotiates trade deals. Even after the pause, on such a pattern, a 10% base tariff remained for India and other major trading partners.
Tariff Reduction: Expanding trade & Tech
Worth noting that India was amongst the earliest nations to initiate a trade deal with Trump's Administration.
India has proposed a significant reduction in its average tariff gap with the United States, from nearly 13% to under 4%. India's average tariff rate is 17% compared with 3.3% by the US.
Agriculture, being the mainstay of India, has a tariff of around 39% on Agri imports. In electronics, US products face a 7.64 % tariff while Indian electronics get a 0.41 % tariff.
This ambitious move, one of India's most extensive tariff reforms, is designed to prevent potential U.S. tariff hikes and stimulate trade. In exchange, India seeks preferential market access for key export sectors such as gems and jewellery, textiles, chemicals, and agricultural produce, along with full tariff exemptions on its exports.
In the first phase, the Indian government announced to reduce duties to zero on 60% of the tariff lines, a comprehensive scale of trade, covering almost 90% of the goods from the US.
What is the tariff story which also connects to the aspiration of the domestic market? The notion that high tariffs work is factually incorrect, especially in the case of developing nations. In many cases, it is only about protecting the few for the fear of competition, which only limits the growth in the long run.
For example, the US has had the lowest trade tariff barriers, even if it's on a 10% basis, it will be among the lowest. The lower tariff in all economic possibilities will work for developing countries, and the next phase of the growth story must hinge on a greater global supply chain by embracing competition and technologies in all possible ways.
Additionally, India has also shown its intent and greater flexibility by offering to ease/simplify export regulations for high-value U.S. goods, including aircraft, medical equipment, and cars. Further, India is also reportedly easing export regulations on several high-value US exports, including electric vehicles, hydrocarbon, devices (telecom), beverages (whiskey and wines), and chemicals (specific).
However, for India, the point of leverage is far beyond the commodity export or import, but strategic areas of critical technologies such as AI, telecoms, biotech, pharmaceuticals, and semiconductors.
It is about tech, talent, and innovation bases.
TRUST & iCET Initiative: Technological beyond tariff
The trade negotiations are largely seen from the point of goods and tariffs for market access, and removing barriers. However, such a binding agreement opens strategic areas of cooperation, accessing advanced technology for both commercial and defence.
Underlining this, the White House recently announced: Central to this partnership is the launch of the U.S.-India TRUST ('Transforming the Relationship Utilising Strategic Technology') initiative. This initiative aims to catalyse government-to-government, academia, and private sector collaboration to promote the application of critical and emerging technologies in areas like defence, artificial intelligence, semiconductors, quantum computing, biotechnology, energy, and space.
Drawing on PM Modi's policy roadmap on critical tech like Artificial Intelligence (AI), Advanced Computing, and Quantum, the TRUST initiative focuses on the development of a U.S.-India Roadmap on Accelerating AI Infrastructure. The TRUST framework is designed to address and enhance AI capabilities across the key sectors of the economy, including military applications in both nations.
Further, Critical and Emerging Technology (iCET), launched in 2022, is opening collaboration in key sectors – from space to semiconductors, biotechnology, cybersecurity, advanced telecommunications, and clean energy. The reduced barriers will potentially advance the ongoing strategic semiconductor partnership between the US Space Force and 3rdiTech to establish a compound semiconductor fabrication plant in India to manufacture infrared, gallium nitride, and silicon carbide semiconductors that will be used in national security-relevant platforms.
In another area is Advanced Materials R&D, where such trade deals can free metal and materials from high-tariff barriers, which is vital for critical military platforms from aerospace (jet engines) to marine propulsion systems to commercial sectors, healthcare, electronics, energy, and transportation.
Moreover, the very quest for self-reliance in defence technologies warrants a greater flow of tech, talent, and trade. India's acquisition of the MQ-9B platforms, the possible co-production of land warfare systems, and progress on other co-production initiatives outlined in the US-India Roadmap for Defence Industrial Cooperation will further broaden industrial bases in India.
The formation of the Bio-5 Biopharmaceutical Supply Chain Consortium, the US-India-ROK Technology Trilateral, is are building block for cooperation with Australia and Japan through the Quad.
Aligning with Global Allies
India has expressed its desire to be treated on par with top U.S. allies like Britain and Japan in sectors such as AI, biotech, and semiconductors. This alignment is crucial as both nations seek to counter common challenges, including unfair practices in export controls and overconcentration of critical supply chains. By fostering deeper ties in these strategic sectors, India aims to enhance its technological capabilities and ensure its position as a key player in the global innovation ecosystem.
A Calculated Leap Forward
This strategic partnership between India and the United States is not merely a trade agreement but a calculated leap toward global leadership. By reducing trade barriers, enhancing technological collaboration, and aligning with global allies, both nations are positioning themselves to address the complex challenges of the 21st century. The tariff reduction or elimination of trade barriers will deepen collaboration across key sectors – from space to semiconductors, biotechnology, cybersecurity, advanced telecommunications, and clean energy.
As the world watches, India's proactive approach could serve as a model for emerging economies seeking to navigate the intricacies of global trade and technology diplomacy.
On India's part, the expectation of full exemptions from tariffs on exports will be a herculean task under Trump's administration, as it came up during the early phase of negotiations between the US and the UK.
However, in areas like the agriculture sector, where nearly half of India's population is dependent on farming or agriculture needs a different approach is needed. India's high tariffs are to safeguard its farmers from imports and the undue disadvantage they might face from the large subsidies in the US. The trade deal and tariff negotiation must take into account such fundamentals of the Indian economy.
The India-US trade and technology partnership does represent a significant step toward building greater trade, technology, and supply chain resilience in the global economy. The trade reset, as it sounds, an alarm bell is rather an opportunity to not only strengthen its ties with the United States but also assert its role as a pivotal force in shaping the future of global trade and technological innovation.
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Views expressed above are the author's own.