President Donald Trump used US market access as a bait to pressure countries into signing purchase deals. He aims to reduce America’s trade deficit. He is aware that, despite some resistance, the world is inclined to oblige him — as was evident in the recent US-China tariff truce. Ideally, it was time he allowed professional negotiators to complete the deals.
However, the US President seems to have fallen in love with his gunpoint diplomacy.
That is precisely the reason behind the latest war of words over the proposed Bilateral Trade Agreement between India and the US.
India is reportedly ready to reduce its simple average non-agricultural tariff from as high as 17 per cent to around 5 per cent. But Trump wants more. Over the past week, he repeatedly claimed that India was willing to cut import duties to zero. It was a gambit to push Indian tariffs below the US non-agricultural average of 2.5 per cent.
Leaving aside the question of the viability of American demands, the Trump administration is refusing to make any promises on India’s expectation of duty cuts by the US in labour-intensive sectors, as hinted at by Foreign Minister S Jaishankar.
Legally, Trump cannot make such promises either. Under US law, the President can increase tariffs on the grounds of national security and/or unfair trade practices by foreign countries. But it is Congress that holds the power to reduce rates below a floor level.
Generally, the US government seeks prior approval from Congress before entering trade negotiations. But Trump was in a hurry. He imposed reciprocal tariffs on the global economy through Presidential proclamations. A rate cut would now require him to go back to Congress.
Delhi was ready to work with the Trump administration on implementing the agreement in the future. But the American President doesn’t want to sign any letter of intent. He is only interested in extracting his pound of flesh — with little regard for India’s global commitments.
A global concern
Looking back, India-US trade negotiations were progressing at a satisfactory pace until two weeks ago. “I would guess that India would be one of the first trade deals we would sign,” US Treasury Secretary Scott Bessent told CNBC in late April.
Clearly, seasoned US negotiators saw merit in the Indian proposal. The dramatic shift since then indicates a difference of opinion within the Trump administration.
India’s concern is real. Since the outbreak of the US-China tariff war during Trump’s first term, the world has been moving away from the WTO-dictated common or MFN (most-favoured nation) tariff-based trade model. The focus has shifted to bilateral and regional trade pacts.
India bucked this trend by actively pursuing trade deals over the last couple of years. By the time Trump returned to power for a second term, India had already concluded — or was negotiating — trade agreements with most major partners, except China.
As per current trends, Delhi aims to finalise trade agreements with nearly every partner it considers beneficial to national interest by 2027. Even Peru figures in this list. China remains excluded.
While this could signal the near-death of MFN-based trade, neither India nor the global community seeks to abandon the rules-based WTO trade regime. This means tariff concessions will continue to be benchmarked against MFN rates.
It also implies that any concessions granted to the US should broadly align with those offered to other trade partners. Violating this golden rule could trigger a wave of reciprocal tariffs between countries. Such chaos would serve neither global trade nor US interests. The US enjoys huge surpluses from services exports. Though it runs a deficit in goods trade, American companies benefit significantly.
Take iPhone production in India, for instance — it is supported by a transnational component value chain. These products are exported to multiple destinations worldwide. Any disruption in trade and tariffs could render the entire operation unviable.
The global trade architecture was already under strain before Trump assumed office. The disruptions he created have pushed it to a tipping point. Many within his own Cabinet are aware that any further push could prove counterproductive.
India has taken the US push as an opportunity to liberalise its trade regime. New Delhi seeks an American commitment to best-in-class deals in areas such as Global Capability Centres (GCCs).
It remains to be seen which way Trump leans. For the moment, he has expressed displeasure at Apple’s continued capacity expansion in India — a stance that risks putting the relationship at stake for a few dollars more.
The writer is an independent columnist