New Era of India-US Economic Relations
Dr. Jayantilal Bhandari
On February 17, the State Bank of India published a report that states that even though the US imposes a 15-20% higher tariff on Indian products, the decline in Indian exports to the US is expected to remain only around 3 to 3.5%. On the other hand, the new phase of bilateral talks between India and the US will likely enhance India’s exports and create more favorable opportunities in global trade.
It is notable that during the bilateral talks between Prime Minister Narendra Modi and US President Donald Trump at the White House, Trump successfully adopted a “give and take” approach. There is no doubt that during these discussions, President Trump strategically moved toward a plan for fair, free, and reciprocal trade. This is clearly evident as the US is unlikely to tolerate excessively high tariffs from India anymore and will focus on reducing trade imbalances through reciprocal tariffs. Trump has announced that countries imposing tariffs on the US will face equal tariffs from the US.
In the bilateral discussions, both India and the US agreed to strengthen their economic ties in areas such as trade investment, technology, energy, and defense. The two countries also expressed their willingness to reduce the US trade deficit, lower tariffs amid trade deadlock, and discuss the purchase of more US oil, gas, and fighter jets. Additionally, they set a target of achieving a bilateral trade volume of $500 billion by 2030. Trump also indicated that the US is preparing to increase military supplies to India, including the F-35 fighter jets. Furthermore, both countries agreed to collaborate on building the India-Middle East-Europe Economic Corridor (IMEEC).
After the highly encouraging and positive bilateral talks between Modi and Trump, despite tariff-related challenges, new historical trade opportunities between India and the US are expected to unfold. However, since President Trump has often criticized India for imposing high tariffs on US products, his reciprocal tariff policy might put India at risk of higher tariffs on its exports. India has already understood Trump's "give and take" approach, and thus, it has started reducing tariffs on certain US products. On February 1, in the 2025-26 budget, India reduced tariffs on goods such as expensive motorcycles, satellite ground installations, and synthetic flavoring essences coming from the US. Now, the two countries will move towards establishing more balanced tariffs based on bilateral discussions.
Undoubtedly, during his second term, President Trump has prioritized the "America First" policy over globalization, moving the US towards self-sufficiency. It is also noteworthy that on February 1, Trump announced a 25% tariff on Canada and Mexico and an additional 10% tariff on China. In response, China imposed a 15% tariff on the US on February 4, marking the start of a new trade war between the US and China. This trade war could open new opportunities for India, but India still faces challenges arising from the new phase of bilateral talks.
It is important to note that a fact sheet released by the White House stated that the US imposes an average 5% tariff on agricultural products from countries with Most Favored Nation (MFN) status. However, India imposes much higher tariffs on agricultural products from these countries. Trump wants equal tariffs on both sides. If the US imposes reciprocal tariffs on specific products, India might not be significantly impacted as the US exports certain products that India does not export to the US. However, if the US applies tariffs on specific sectors, India could face challenges in exporting certain products, especially textiles and agricultural goods where import duties are high in India. This could potentially affect India’s exports.
In addition to tariffs, the US has emphasized that India should increase its oil imports from the US. Currently, India is importing oil from Russia at lower prices and paying in the local currency, rubles. However, importing oil from the US would require payment in US dollars, and since the value of the Indian Rupee is currently at a historic low against the dollar, this could further depreciate the Rupee’s exchange rate.
We hope that the bilateral talks between Prime Minister Modi and President Trump on February 14 will open a new chapter in India-US economic relations. We expect that India’s industries and businesses will successfully tackle the challenges posed by reciprocal tariffs while reducing production costs and improving quality. By 2030, both countries should be able to achieve a $500 billion bilateral trade target.
Author: Dr. Jayantilal Bhandari (Renowned Economist)
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