Trump’s tariff hikes have triggered a global backlash. While countries plan to retaliate, India seems willing to engage, eyeing trade opportunities. Can US-India Relations get reset?
Introduction
“Trade is not about goods. Trade is about trust.” – Mukesh Ambani.
In the shifting sands of global diplomacy, India and the United States have often found themselves on the same page—and occasionally, reading from entirely different scripts. One day, it’s strategic hugs and joint space missions; the next, it’s pointed tweets about unfair tariffs. In 2025, the relationship stands at an inflection point between political rhetoric and economic pragmatism.
While the strategic camaraderie between the world’s largest democracy and its oldest continues to deepen, a familiar ghost has returned to haunt trade talks: “tariffs”. The new year brought more than just resolutions and optimism; it carried a renewed spotlight on import duties, a looming trade imbalance, and a test of mutual patience.
The Roots Run Deep: A Relationship Forged Over Decades
India and the United States have shared a dynamic, albeit complex, economic relationship for decades. In recent years, the bond has matured significantly, underpinned by trade, technology, defence, and people-to-people ties. Bilateral trade in goods and services stood at a robust $190.08 billion in 2023, with India running a healthy surplus thanks to its exports of gems, pharmaceuticals, textiles, and software services. But the journey hasn’t been without its bumps.
The United States has often expressed concern about India’s “protective” trade policies, while India has countered with criticisms of arbitrary tariffs and shifting goalposts. This back-and-forth has become a cyclical narrative, with periodic breakthroughs often followed by renewed disputes.
Enter 2025: Old Issues in a New Election Year
As the United States entered another election cycle, trade rhetoric was dialled up. Former President Donald Trump, once again in the limelight, branded India as the “biggest charger of tariffs” on foreign goods. This wasn’t a new claim—but in 2025, the tone had hardened. Trump’s administration signalled a more aggressive stance, proposing a 26% reciprocal tariff on select Indian goods. Indian policymakers, while disappointed, were not entirely surprised. The challenge now? Walking the tightrope between economic defence and diplomatic dialogue. In New Delhi, the move was received with concern. India’s growth forecast, at 6.7% for 2025–26, was suddenly at risk, as exporters feared losing access to their most lucrative market.
Mission 500: Ambition Amid Agitation
Yet, even amid this turbulence, hope shimmered on the horizon. During Prime Minister Narendra Modi’s visit to Washington in early 2025, both nations made a bold pledge—to more than double their bilateral trade to $500 billion by 2030, under an initiative dubbed “Mission 500”. The vehicle for this transformation? A long-overdue Bilateral Trade Agreement (BTA).
Negotiations for the BTA have since begun, with a targeted first tranche expected by autumn 2025. The focus areas are wide-ranging—tariff reduction, non-tariff barriers, supply chain integration, and enhanced market access. Ministers from both sides have spoken of “complementarity” and “common ground”. But as history has shown, the devil lies not in the diplomacy but in the details.
The Tariff Trap: What’s at Stake?
India’s export-heavy sectors—pharmaceuticals, automobiles, textiles, and IT services—stand to gain or lose the most from how these tariff negotiations unfold. Take pharmaceuticals, for instance. India is known as the “pharmacy of the world”, and the US is its largest customer. So, when Trump threatened sweeping tariffs on drug imports, Indian pharma stocks took a beating—Biocon, Sun Pharma, and Lupin saw losses, with investors jittery over a potential dip in margins.
Similarly, the automotive and textile industries are feeling the heat. With “America First” policies gaining traction again, fears abound over protective tariffs that could make Indian goods less competitive. The possibility of ‘mirror tariffs’, where both nations raise duties in tit-for-tat fashion, risks triggering a mini trade war.
Diplomacy Behind the Curtains: Talks, Tensions, and Teamwork
Behind the camera flashes and joint statements, a lot is happening in backrooms and boardrooms. Indian Commerce Minister Piyush Goyal has held multiple rounds of talks with U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick. The goal is clear: defuse the tension before it spills over into the broader economic relationship.
There’s cautious optimism on both sides. Goyal has described the talks as “frank but friendly”, while Greer noted “concrete progress” on tariff alignment. But the road ahead remains arduous. Contentious issues like data localisation, digital trade, agricultural subsidies, and intellectual property rights are yet to be resolved.
The Role of the Private Sector: CEOs Stepping In
An interesting subplot to this economic drama is the role of business leaders. The US–India CEO Forum, restructured in 2022, has become an active channel of commercial diplomacy. Corporate heads from both countries—think Tata, Reliance, Google, Amazon, and Apple—are lobbying for a smoother trade environment. They’re not just lobbying for reduced tariffs but also for the creation of standards in digital trade, cross-border investment mechanisms, and green technology transfers. With sustainability and clean energy high on both nations’ agendas, trade isn’t just about traditional goods anymore.
When Central Banks Talk Trade: RBI’s Delicate Balancing Act
While much of the action is happening at the political and diplomatic level, India’s Reserve Bank (RBI) is quietly preparing for contingencies. Any disruption in exports due to tariffs directly affects foreign exchange reserves, the value of the rupee, and broader monetary policy.
The RBI has already hinted at introducing export credit lines and tweaking interest rates to support affected industries. Meanwhile, trade-reliant sectors such as textiles and gems—which employ millions—have been identified as potentially vulnerable. What’s at stake is more than trade numbers. It’s about jobs, economic sentiment, and India’s ability to project stability in the global investment landscape.
Looking East: The China Factor
Interestingly, the India–US tariff debate doesn’t exist in a vacuum. As the US decouples from China on various fronts—from microchips to pharmaceuticals—it is increasingly looking to India as an alternative supplier and strategic partner. This shifting equation plays to India’s advantage. US companies are eager to diversify their supply chains and reduce their dependence on China. India, with its large labour force, democratic institutions, and tech-savvy youth, presents an appealing alternative. However, there’s a catch.
India must ensure that its trade policies remain investor-friendly and predictable. Sudden regulatory changes or high import duties could scare off American investors who are already cautious after navigating complex Chinese markets. Hence, the current tariff spat is not just about correcting trade imbalances—it’s about setting the tone for future industrial cooperation.
Green Trade: The New Frontier
One of the more promising aspects of the upcoming bilateral trade deal is the emphasis on sustainability. Both countries are major global polluters—and also major innovators in renewable technologies. India is pushing for US investment in solar infrastructure, EV technology, and hydrogen fuel cells, while the US wants Indian compliance with global climate standards, especially concerning emissions-heavy manufacturing. The challenge will be to balance environmental commitments with economic ambition. A BTA that incentivises green exports, supports carbon credit systems, and funds climate resilience projects could set a new global benchmark.
Beyond Trade: Technology, Defence, and Trust
Trade disputes often steal the headlines, but the India–US relationship is far broader. The two countries have steadily enhanced cooperation in defence, cybersecurity, space exploration, and education. In 2024, the two nations signed the iCET agreement (Initiative for Critical and Emerging Technologies), aimed at jointly developing artificial intelligence, quantum computing, and next-generation telecom infrastructure.
The hope is that this technological partnership will lend weight to the trade negotiations. If the two countries can cooperate in sensitive areas like aerospace, defence and data security, surely they can sort out a few tariff rows? That’s the argument from optimists on both sides.
A Fragile but Fixable Equation
Make no mistake: the India–US trade relationship is strategic, not transactional. It’s driven by long-term convergence, even if short-term irritants persist. Both countries know that escalating tariffs could snowball into larger economic and geopolitical consequences. There’s a sense in New Delhi and Washington that the time for half-measures is over. A well-negotiated Bilateral Trade Agreement—with clear dispute resolution mechanisms, technology-sharing protocols, and fair market access—is no longer a “nice to have”. It’s a necessity.
Public Perception and Political Calculus
It would be naïve to assume that trade decisions are made purely on economic grounds. Politics is never too far behind. In the United States, tariff increases resonate with protectionist voters, especially in manufacturing-heavy states. In India, calls for “Atmanirbhar Bharat” (self-reliant India) mean leaders cannot afford to appear weak in the face of foreign economic pressure.
This political tug-of-war makes diplomacy all the more complex. Negotiators have to sell any trade deal not just to each other but to domestic audiences back home. Hence, the language around the upcoming agreement is cautious. It’s being framed as a “win-win”, not a concession. Whether it’s American soybeans entering Indian markets or Indian pharma products avoiding US tariffs, every clause will be scrutinised.
What the Future Could Look Like
If all goes well—and that’s still a big “if”—India and the US could be on track to not just doubling trade by 2030 but redefining the ethos of bilateral commerce in the modern era. Imagine an India–US trade corridor that enables the following:-
- Zero-duty exports for key sectors like clean tech, textiles, and software.
- Joint R&D centres for AI, robotics, and biotech.
- Preferential digital trade terms enabling smoother cloud data flow.
- Simplified visa norms for cross-border professionals and students.
Such a future is not far-fetched and could be possible. But it requires trust. Trust is built slowly, not declared via press releases.
Conclusion
As things stand, India and the US find themselves at a crossroads. On one hand, they are natural allies—democracies that value openness, innovation, and resilience. Conversely, they’re strong-willed nations with protectionist instincts and domestic compulsions. A tariff war may appear complex, but it’s symbolic. They reflect how much a country values access, openness, and fair play. The world will be watching how these two nations resolve their latest trade tiff—not just to see who “wins” but to assess whether the world’s largest democracy and its most powerful one can build a modern trade partnership based not on coercion but on cooperation since, trade is not just about goods, it’s about goodwill.
Title image courtesy: India Today
Disclaimer: The views and opinions expressed by the author do not necessarily reflect the views of the Government of India and Defence Research and Studies
References
- India–US Trade. India Brand Equity Foundation (IBEF). Retrieved from https://www.ibef.org/indian-exports/india-us-trade
- Trump’s Trade Remarks. Associated Press. Retrieved from https://apnews.com/article/579f182cc6204270de2eb3f549100b2e
- Bilateral Trade Deal and Mission 500. Economic Times CFO. Retrieved from https://cfo.economictimes.indiatimes.com/amp/news/india-us-aim-to-double-bilateral-trade-to-usd-500-bn-by-2030-announces-plan-for-mega-trade-deal/118249983
- Modi–Trump Dialogue. Indian Express. Retrieved from https://indianexpress.com/article/india/us-bilateral-trade-modi-trump-agreement-9835497
- Goyal’s Remarks. Business Standard. Retrieved from https://www.business-standard.com/economy/news/india-us-committed-to-boosting-trade-to-500-bn-by-2030-piyush-goyal-125021800208_1.html
- Pharma Stocks Tumble. The Guardian. Retrieved from https://www.theguardian.com/us-news/live/2025/apr/08/donald-trump-threatens-tariffs-50-per-cent-china-us-politics-latest-updates-news
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