With just a day left for the August 1 deadline set by the Donald Trump administration to wrap up agreements with its trading partners, the American President threatened tariffs of up to 25 per cent on Indian imports if the elusive bilateral trade agreement between the two countries is not in place by that date. “They are going to pay 25 per cent,” Trump said on Tuesday.
When asked during a press interaction if India would pay tariffs of 20 per cent to 25 per cent, Trump said, “Yeah, I think so. India has been – they’re my friends.” US Trade Representative Jamieson Greer had told CNBC on Monday that the trade agreement with India would need more discussion between the two countries.
Trump had in April set the tariff on Indian goods imported into the US at 26 per cent on April 2, before pausing his so-called “reciprocal” levies. Earlier, on Monday, Trump had said he is planning tariffs at “somewhere in the 15-20 per cent range” for “the rest of the world”. That would mean a significant increase on the 10 per cent “baseline” tariff that applies to most trading partners now.
India Deal
Given how talks between Indian and American negotiators have proceeded, an interim deal still seems distant and is unlikely to be clinched before September, with October a possible outer deadline. Indications are a sixth round of talks between the two negotiating teams will take discussions forward in August.
For New Delhi, a tariff of 25 per cent is bad news, but something that policy circles seem to have already factored in. This rate essentially means going back to the reciprocal tariff level, which was 26 per cent. The resolve from the Indian side would be to push the interim deal in the meantime, to ensure that Indian goods manage a discounted headline tariff, as has been wrangled by other countries that have struck a deal over the last couple of weeks. Trump’s threat of steep tariffs on BRICS countries for buying Russian oil is also a looming concern and the big question is if the 10 per cent BRICS tariff threatened by Trump would be over and above this 26 per cent. Without the BRICS levy, India’s 26 per cent will compare reasonably well with countries such as Indonesia (19 per cent) and Vietnam (20-40 per cent) that have wrapped up deals, and could have an advantage over the current levels of tariffs faced by China (30-34 per cent) and Bangladesh (35 per cent). The equation changes when the additional levies are factored in.
Once the interim deal is clinched, if the final US headline tariff on India ends up between 10 per cent and 15 per cent, the tariff points offered to the UK and Japan, respectively, New Delhi would have reasons to be satisfied. The advantage starts to taper off once the tariff goes over 15 per cent and inches up closer to 20 per cent, as was offered to Vietnam. A trans-shipment clause, of the kind slapped on Vietnam which levies an additional 20 per cent tariff, could be a problem for India too, given that a lot of Indian exports have inputs and intermediate goods in sectors such as pharma, engineering goods and electronics coming in from outside, including China. Also, New Delhi will be closely looking for clarity on the final American duty offer on China, given its belief that Trump will maintain a tariff differential. US and Chinese officials wrapped up two days of discussions in Stockholm on Tuesday, with no breakthrough announced. After the talks, China’s top trade negotiator Li Chenggang declared that the two sides agreed to push for an extension of a 90-day tariff truce struck in mid-May, without specifying when and for how long this extension kicks in.
For Indian negotiators, extra tariffs on steel and aluminium, over and above the baseline, is an added complication, alongside the proposed BRICS tariff. Trump’s insistence on zero duty access to the Indian markets, like in its deals with Vietnam and Indonesia, is also a problem for India. New Delhi is, however, willing to offer concessions on high-value purchases that the US is keen to package as part of its tariff-setting exercise, like the way it got the EU and Japan to sign up for a commitment on investments and purchases of American goods. India may be open to purchasing three big-ticket items from the US: defence equipment, natural gas imports and nuclear reactors.
On specific sectors such as auto or consumer non-durables, India is likely to follow a quota system that progressively opens up market access over a span of multiple years, like it did in the UK deal signed last week.
Exporters Struggle
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Meanwhile, as the uncertainty continues, India’s exporters are struggling to navigate the way forward because buyers in the US are not clear as to what the final tariff will be, and are consequently holding back orders. The higher tariffs that the US has imposed on China means a number of Chinese manufacturers are now also rerouting shipments to Europe at throwaway prices, which is impacting India’s exports to the EU as well. India, like other countries, had frontloaded shipments ahead of the reciprocal tariff deadline for the ongoing Spring-Summer season, but there is now a question mark over the orders for the Fall-Winter season from October to March.
Once the official level discussions wrap up by mid-August, there is a sense that a final call on the deal could come down to a conversation between the two leaders, Prime Minister Narendra Modi and President Trump. This is especially so since it is Trump who is the trade negotiator-in-chief. For India, the best-case scenario would be to get a deal of some sort now, and then build on that in the future negotiations that could run into 2026, experts said.
