On February 13, 2025, Prime Minister Narendra Modi and President Donald Trump launched formal talks for a Free Trade Agreement (FTA). Now, as the negotiations reach final stages, India must pause and introspect: Does this deal even qualify as an FTA? Is it a rushed deal that risks giving away too much for too little in return?
Worldwide, over 375 FTAs are currently in force. Under these agreements, all partner countries reduce their Most-Favoured-Nation (MFN) tariffs on a significant portion of their trade, as mandated by Article XXIV of the General Agreement on Tariffs and Trade (GATT) under WTO rules. MFN tariffs are the standard customs duties a country applies equally to all WTO members unless lower preferential rates are offered through an FTA. The India-US deal will not meet this criterion. While India plans to reduce its MFN tariffs to benefit thousands of US products, the US is not offering MFN tariff cuts. Instead of cutting standard MFN tariffs, the US may only reduce its special “Liberation Day” tariffs on Indian goods. These were country-specific duties it imposed on April 2 across 57 nations. For India, that tariff was set at 26 per cent.
The extra “Liberation Day” tariffs the US added on top of its MFN tariffs go beyond the WTO-bound rates — the maximum duty levels the US promised not to exceed. This makes the “Liberation Day” tariffs a clear breach of the US’s WTO commitments.
Trump paused these extra tariffs on April 9 for 90 days (until July 8) to pressure countries into making quick concessions. However, even after the US tariff cut, Indian goods will still face an additional 10 per cent tariff on top of the regular US MFN tariffs. This kind of arrangement does not qualify as an FTA under WTO rules.
But incompatibility with WTO rules is not the only issue — the “Liberation Day” tariffs also break US law. Trump invoked the International Emergency Economic Powers Act (IEEPA), a law meant for national security emergencies, to impose the “Liberation Day” tariffs. However, on May 28, the US Court of International Trade ruled them illegal, finding that trade deficits are just an economic issue — not an “unusual and extraordinary threat” that justifies using IEEPA. In short, Trump overstepped the powers granted to him by Congress.
Although the US Court of Appeals has paused the ruling and given the administration until June 9 to respond, the signal is clear: the “Liberation Day” tariffs breach WTO rules and are likely to collapse under US law. Yet, Washington is using the promise of lifting these likely illegal tariffs to pressure India and others into making swift, permanent trade concessions — racing to secure deals before the tariffs’ legal shelf-life runs out.
The US-UK trade deal signed on May 8 provides a sobering preview. Under that agreement, the UK slashed tariffs on over 2,500 US products, removed duties on American ethanol, and increased purchases of Boeing aircraft — while the US offered tariff cuts on fewer than 100 British products, most capped at 10 per cent. It was not a balanced FTA. Was this done hurriedly to pressure other countries to follow suit?
India must challenge the misleading US narrative that frames the bilateral trade relationship solely through the lens of goods trade deficits. While India ran a trade surplus of $44.4 billion with the US in FY2025 (Table 1), US quietly earns $80-85 billion (Table 2) annually from India through education exports, financial services, intellectual property royalties, digital operations, and arms sales. When these flows are included, the US enjoys a $35-40 billion surplus vis-à-vis India — hardly the picture of a disadvantaged partner.
Rushing to appease
Yet, rather than assert this reality, India has rushed to appease. Since January, India has unilaterally cut import duties on bourbon whiskey, fish feed, motorcycles, satellite parts, and mobile components. It has removed a 6 per cent digital tax on US tech giants and is preparing to revise its nuclear liability law to facilitate the sale of US reactors. This pattern of concessions without reciprocal gains has emboldened Washington’s negotiating stance.
Reports suggest that New Delhi is preparing to cut tariffs on sensitive sectors, such as autos and agriculture, open its government procurement market, ease intellectual property and data rules to favour US tech and pharmaceutical companies, and clear foreign access for players like Elon Musk’s Starlink. These shifts would have wide-reaching effects across India’s economy.
The risks of going too far are real. India’s recent agreement with the UK, for example, included an unprecedented cut in car import tariffs from 100 per cent to 10 per cent, even covering electric and hybrid vehicles where India is just starting to build capacity. Such moves when followed in FTAs with the US and EU could discourage foreign investment in local manufacturing, as global firms may export directly rather than set up factories in India.
India’s best bet is to reframe the negotiation. Instead of a broad FTA covering goods, services, digital trade, and regulations, India should propose a narrow, goods-only “zero-for-zero” deal: cut tariffs on 90 per cent of US exports to India but exclude sensitive sectors such as agriculture and autos. This would meet Washington’s primary demand on tariffs, deliver clear wins for US exporters, and protect India’s regulatory space. It would also mirror the approach taken by the EU, which has proposed zero-for-zero tariff deals on industrial goods with the US.
If India accepts US terms, the cost will be heavy. One-sided tariff cuts, rule changes, and market openings would give US exporters long-term benefits, while the temporary “Liberation Day” tariffs would vanish on their own. These US tariffs won’t last, but India’s concessions would. Instead of rushing into an unequal deal, India should aim for a narrow, fair agreement focused on industrial goods to protect its core economic and strategic interests. If the US won’t agree to fair, reciprocal terms, India should walk away. No deal is better than a bad deal — and right now, what’s on offer is a bad deal.
The writer is founder of GTRI