Navigating the Hurdles: Where the US-India Trade Deal Stands
Navigating the Hurdles: Where the US-India Trade Deal Stands
Trade negotiations between two of the world's largest economies have historically felt like a high-stakes game of chess. Over the past year, discussions between Washington and New Delhi faced significant friction, punctuated by sharp tariff threats and political brinkmanship. However, recent high-level diplomatic pushes suggest both nations are shifting from deadlock to finalizing an unprecedented bilateral agreement.
What Stalled the Negotiations?
The primary friction stemmed from transactional pressure tactics and deeply rooted policy differences:
Tariff Escalations and Sanctions Threats: Discussions hit major bumps when Washington threatened widespread tariffs tied to sanctions legislation aimed at nations maintaining Russian energy imports. To break the impasse, President Donald Trump instituted a temporary 60-day pause on proposed tariffs of up to 100% on Indian goods, opening a window for bilateral dialogue.
Agriculture and Dairy Restrictions: The US has long sought greater market access for its agricultural and dairy products. New Delhi, protecting millions of small-scale domestic farmers and rural livelihoods, has historically maintained strict tariffs and non-tariff barriers.
Medical Devices and Price Controls: American medical device exporters pushed back against Indian price caps and import licensing requirements. Conversely, Indian medical tech exporters sought reciprocal regulatory acceptance and reduced tariffs on high-volume medical products sent to the US.
Steel and Aluminum Tariffs: India continues to push for relief from US Section 232 tariffs on steel and aluminum exports, looking for a balanced bilateral arrangement.
The Pivot Toward Finalization
Despite the turbulence, negotiations have reached their most crucial phase. Following intensive diplomatic meetings in Mumbai involving US Secretary of State Marco Rubio and Indian officials, both capitals confirm that a landmark agreement is imminent.
| Area of Negotiation | Initial Pressure Point | Current Landing Zone |
| Tariff Pressures | Threats of up to 100% tariffs | 60-day temporary tariff pause to finalize terms |
| Medical Devices | Indian import restrictions & US tariffs | Tariffs cut to 18% alongside non-tariff barrier reductions |
| Agriculture & Goods | Limited American market access | Calibrated tariff cuts safeguarding local MSMEs & farmers |
| Overall Scope | Broader standard trade agreement | Shifted to a "much different kind of deal" tailored to strategic needs |
President Trump recently noted that the two sides are "pretty close" to a deal, describing it as a distinct, modern framework compared to conventional trade pacts.
The bilateral framework resets tariff structures, expands product access, and establishes long-term commodity purchase targets between the United States and India.
1. Indian Exports to the US
Tariff Cut to 18%: The US agreed to lower its general effective tariff on originating Indian goods from 50% down to a uniform reciprocal rate of 18%.
Key benefiting sectors include: Textiles & Apparel: Gains restored cost competitiveness in high-volume export lines.
Leather & Footwear: Immediate tariff relief for Indian manufacturers.
Gems & Jewelry: Substantially lowers price points for Indian diamonds and polished gemstones.
Plastics, Rubber & Organic Chemicals: Subject to the baseline 18% rate.
Automotive Parts: Receives a dedicated preferential tariff-rate quota.
Zero-Tariff / Duty-Free Access:
Generic Pharmaceuticals & Active Ingredients: Preserves duty-free flow and tailored outcomes for essential medicines.
Aerospace: Select commercial aircraft and aircraft components enter duty-free.
Exclusions / High-Tariff Retainers:
Steel, Aluminum, and Copper: Section 232 tariffs remain capped at 50%.
2. US Exports to India & Agricultural Commitments
India agreed to eliminate or sharply reduce import duties across all US industrial goods and a wide range of agricultural products:
| Commodity Category | Target US Products | Agreed Tariff Action |
| Feed & Grains | Dried Distillers' Grains (DDGs), Red Sorghum | Duty reduction under targeted tariff-rate quotas |
| Tree Nuts & Horticulture | Almonds, walnuts, fresh & processed fruits | Significant duty reductions |
| Vegetable Oils | Soybean oil | Lowered customs tariffs |
| Beverages | Wine and distilled spirits | Reduced import duties |
| Industrial & Tech | All US industrial goods, GPUs, data center hardware | Tariff elimination/reductions & alignment on digital trade |
Protected Sectors: Essential staple crops (such as domestic wheat and rice) and fresh dairy remain largely shielded from tariff cuts to protect local smallholder farming operations.
3. Non-Tariff Barriers & Long-Term Commitments
Medical Devices & Tech: Simplified conformity assessment procedures and regulatory harmonizations to ease testing constraints on American medical devices and information technology products.
$500 Billion Purchase Target: India pledged up to $500 billion in purchases of US goods over five years, primarily focusing on American crude oil, liquefied natural gas (LNG), coking coal, technology products, and commercial aircraft.
The recent US–India Bilateral Trade Agreement (BTA) reflects a highly transactional, executive-driven approach centered on reciprocal tariffs and targeted purchase commitments. This contrasts with the structural, regulatory, and sector-specific frameworks that define US trade relations with Western partners like the European Union (EU) and the United Kingdom (UK).
Core Comparison Matrix
| Feature / Dimension | US–India Trade Framework | US–EU Trade Alignment | US–UK Economic Partnership |
| Primary Mechanism | Reciprocal base tariffs (18%) + target purchases ($500B over 5 yrs). | Targeted sectoral tariff suspensions & regulatory dialogue. | Targeted sectoral arrangements, digital trade, & defense/industrial alignment. |
| Agriculture & Food | Selective tariff cuts on nuts, feed, & wine; sensitive staples (dairy, rice) fully protected. | Strict EU SPS (sanitary/phytosanitary) barriers maintained; limited US agri access. | Limited agri access due to UK food safety standards (e.g., hormone-treated beef/chlorinated poultry restrictions). |
| Industrial Goods & Tech | US industrial goods gain duty cuts; India increases GPU/data center imports. | Reciprocal tariff freezes on commercial aircraft and machinery. | Mutual recognition in specialized sectors, defense tech, and green tech supply chains. |
| Services & Digital Trade | Focused on IT hardware/software purchases; cross-border data flows remain restricted by local laws. | Constrained by EU digital regulation (GDPR, Digital Markets Act). | High alignment on digital trade, financial services, and cross-border data transfer mechanisms. |
| Steel & Metals (Sec. 232) | Tariffs on Indian steel/aluminum capped at 50% (aircraft parts exempt). | Tariff-Rate Quota (TRQ) system replacing blanket tariffs on EU metals. | TRQ system allowing duty-free UK steel/aluminum up to historical volume baselines. |
1. Transactional Commitments vs. Regulatory Harmonization
US–India: Built around a major trade balancing mechanism—specifically India's intention to purchase $500 billion in American energy, technology, coking coal, and commercial aircraft over five years in exchange for a reciprocal 18% general tariff rate on Indian goods.
US–EU & US–UK: Focus far more heavily on removing non-tariff barriers, aligning regulatory standards (such as green technology standards or medical testing), and coordinating on economic security measures regarding supply chains.
2. Scope of Concessions and Protectionism
US–India: Protects domestic political sensitivities on both sides. India carved out complete exclusions for its smallholder agriculture and dairy sectors, while the US maintained a 50% tariff cap on Indian steel, aluminum, and copper under Section 232.
US–EU / US–UK: While full comprehensive FTAs remain off the table with Washington, the US granted broader metal tariff relief via Tariff-Rate Quotas (TRQs) to the UK and EU in exchange for joint standards on low-carbon industrial manufacturing.
3. Strategic Realignment
US–India: Prioritizes shifting critical supply chains (electronics, pharmaceuticals, telecom hardware) away from non-market economies and into allied developing partners.
US–EU / US–UK: Focuses on maintaining high-value technological superiority, protecting intellectual property, and harmonizing transatlantic sanctions enforcement.
| Feature / Dimension | US–India Bilateral Framework | India–EU Free Trade Agreement |
| Agreement Type | Bilateral tariff alignment & trade-balancing deal. | Comprehensive Broad-based Free Trade Agreement (FTA). |
| Tariff Reductions | US sets a 18% reciprocal baseline on Indian goods; steel/metals capped at 50%. | EU eliminates tariffs on 99.5% of Indian exports by value (90.7% immediate). |
| Automotive Access | Targeted preferential tariff-rate quotas (TRQs) on auto parts. | Unprecedented Indian cuts on European autos from 110% down to 10% via quota. |
| Agriculture & Food | Selective US access (nuts, feed, wine); India protects staple grains/dairy. | Phased EU access for wines (150% down to 20%), spirits, and processed foods; sensitive dairy/wheat excluded. |
| Regulatory & ESG Frictions | Low ESG focus; relies on standard conformity assessments and technical barriers. | High regulatory impact via EU CBAM (carbon taxes), Deforestation Rules, and strict SPS standards. |
| Services & Mobility | Primarily focused on technology sales and hardware sourcing. | Includes structured mobility frames for Indian IT professionals, contractual suppliers, and business visas. |
1. Broad Tariff Elimination vs. Uniform Target Rates
US–India: Operates on a uniform tariff baseline. Indian goods exported to the US gain a lower 18% general rate (down from 50%), while high-volume agricultural and industrial items receive calibrated access.
India–EU: Works through asymmetric, near-total tariff elimination.
The EU grants immediate duty-free entry to key Indian export sectors—including textiles, apparel, leather, footwear, and gems—while India offers historic concessions on European automobiles and beverages.
2. Regulatory Frictions: Carbon and Standards Compliance
US–India: Focused on procedural alignment for medical devices and IT hardware standards without tying trade directly to domestic environmental or carbon legislation.
India–EU: High regulatory friction. Indian industrial exporters (such as steel, aluminum, and chemical manufacturers) must comply with the EU’s Carbon Border Adjustment Mechanism (CBAM) and EU Deforestation Regulation (EUDR).
These non-tariff measures require rigorous supply chain transparency and offset some duty savings.
3. Services, Mobility, and Long-Term Structure
US–India: Governed by bilateral target pledges—such as India’s $500 billion multi-year purchasing plan spanning US energy, commercial aircraft, coking coal, and GPUs.
India–EU: Contains a dedicated services corridor designed to ease short-term professional mobility, contractual IT work, and social-security coordination between India and EU member states.
The EU Carbon Border Adjustment Mechanism (CBAM) serves as a significant regulatory counterweight to the market access gains achieved under the India–EU Free Trade Agreement (FTA). While the FTA slashes nominal import tariffs on 99.5% of Indian goods entering the EU, CBAM imposes an additional emissions-linked equalization levy on carbon-intensive industrial sectors.
For Indian steelmakers—who send roughly 20% to 27% of their total exports to the European market—CBAM fundamentally alters the economics of trade.
Key Impacts on Indian Steel Exporters
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1. Erosion of Tariff Advantages (Cost Inflation)
High Embedded Emissions: Around 70% of India's steel production relies on the high-emission Blast Furnace–Basic Oxygen Furnace (BF–BOF) coal-based route, resulting in an average carbon intensity of 2.3–2.8 tonnes of CO₂ per tonne of crude steel (compared to the EU average of ~1.3–1.4 tCO₂).
The Tariff vs. Levy Deficit: While the FTA eliminates standard customs tariffs (saving around 2.5–5%), the CBAM tax on embedded carbon translates to an added levy of $55 to $145 per tonne of steel as EU free allowances phase out. This net levy outweighs the landed cost savings from the FTA, threatening profit margins by 9% to 22% on EU-bound shipments.
2. Compliance and Verification Friction (MRV)
Measurement, Reporting, and Verification (MRV): Exporters must track and document installation-level direct (Scope 1) and precursor emissions according to strict EU methodologies.
Impact on MSMEs & Supply Chains: Mid-sized re-rollers, fabricators, and downstream steel processors struggle to obtain verified emissions data from upstream coal and electricity suppliers.
This dynamic creates administrative delays and compliance overhead for smaller suppliers.
3. Limitations of Domestic Carbon Offsets
Carbon Credit Trading Scheme (CCTS): Article 9 of the CBAM regulation allows importers to deduct carbon prices already paid in the country of origin. However, India's emerging domestic carbon market (CCTS) is an intensity-based system. Until it features an explicit, verifiable floor price equivalent to the EU Emissions Trading System (ETS), Indian exporters cannot claim a full offset against their EU CBAM liability.
Strategic Responses by Indian Steelmakers
| Short-Term Diversion | Long-Term Decarbonization | Policy & Structural Adjustments |
| Market Rerouting: Directing carbon-heavy primary steel exports away from Europe toward non-CBAM regions in the Middle East, Southeast Asia, and Africa. | Scrap & EAF Adoption: Expanding Electric Arc Furnace (EAF) capacity using steel scrap to instantly lower carbon intensity per tonne. | Carbon Tax Structuring: Government-level discussions to formalize explicit domestic carbon levies on exports to capture tax revenues domestically rather than paying them to the EU. |
| Product Allocation: Allocating low-emission or green-certified production lines specifically to fulfill EU-bound orders. | Green Hydrogen & DRI: Investing in Direct Reduced Iron (DRI) plants powered by Green Hydrogen to replace coal-based ironmaking. | Supply Chain Digitalization: Implementing digital MRV tracking across upstream suppliers to automate EU reporting. |
Because Indian steel relying on coal-based Direct Reduced Iron (DRI) or Blast Furnaces produces 2.3–2.8 tonnes of CO₂ per tonne of steel, CBAM threatens to levy heavy carbon penalties. The NGHM targets this exact emission profile at the root.
Key Pillars Supporting Decarbonization and CBAM Compliance
1. Transitioning to Green Hydrogen DRI ($H_2$-DRI)
Eliminating Coal-Based Reduction: In traditional DRI steelmaking, non-coking coal or natural gas is used to remove oxygen from iron ore, releasing vast amounts of CO₂. Under the NGHM, green hydrogen acts as the reducing agent, producing water vapor ($H_2O$) instead of CO₂.
Drastic Carbon Drop: Combining $H_2$-DRI with clean-powered Electric Arc Furnaces (EAF) reduces carbon intensity down to less than 0.4 tCO₂ per tonne of steel. This places Indian steel well below the European average (~1.3–1.4 tCO₂), effectively eliminating the embedded emissions that attract CBAM certificate liabilities.
2. Subsidies and Cost Subsidization (SIGHT & Pilot Outlays)
The main barrier to $H_2$-DRI transition is that green hydrogen is currently more expensive than coal. The NGHM levels the financial playing field through:
SIGHT Programme (₹17,490 crore): Provides direct financial incentives for domestic electrolyser manufacturing and green hydrogen production to drive down per-kilogram supply costs.
Steel Pilot Projects (₹455 crore): Directly funds low-carbon and green hydrogen steel pilot plants, allowing domestic steel majors (such as SAIL and Tata Steel) to test blended hydrogen injection into existing furnaces before scaling to 100%
3. Lowering Hydrogen Production Costs via Power Policies
Interstate Transmission Charge Waivers: The NGHM waives inter-state transmission system (ISTS) charges for renewable energy used to generate green hydrogen.
Grid Connectivity & RE Banking: Eases rules for dedicated solar/wind plants feeding electrolysers, dropping levelized hydrogen costs toward target thresholds ($2–$3/kg). Lower hydrogen production costs directly reduce the landed cost of Indian "green steel" in Europe.
4. MRV and Carbon Accounting Harmonization
Standardization Framework: To claim low-carbon status under the EU's CBAM, steelmakers cannot simply claim to use green hydrogen; they must prove it with accredited Measurement, Reporting, and Verification (MRV) systems.
National Green Hydrogen Taxonomy: The NGHM establishes a national certification framework that defines green hydrogen emission thresholds.
This framework aligns with international and EU taxonomy rules, giving European importers valid, audit-ready emission proof to bypass default CBAM tax penalties.
Economic Takeaway for Indian Exporters
Blast Furnace / Coal DRI H₂-DRI + Renewable EAF
By leveraging NGHM subsidies to shift capacity toward $H_2$-DRI, Indian exporters turn a potential trade barrier (CBAM) into a competitive advantage over global peers who remain reliant on fossil-fuel infrastructure.
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