A Tariff Advantage, Not Yet A Trade Deal: India's Unfinished Bargain With Trump

The proposed India-US trade agreement has been through several rounds of negotiations, pauses and diplomatic disagreements since the two countries announced plans to pursue a bilateral deal in February 2025. Despite an interim framework being announced earlier this year, the broader agreement remains unfinished, with differences over market access, tariffs and sensitive sectors continuing to complicate discussions. However, the latest assurance from Washington that India could receive a comparative tariff advantage over competing economies may offer some movement on one of New Delhi’s key demands, even as negotiations continue.

Bloomberg has reported that the US has assured India of more favourable tariff treatment than that available to some of its competing export economies under the proposed agreement. The assurance is important because India has been seeking tariff terms that would allow its exporters to compete with countries like Vietnam and Bangladesh in the American market. However, it does not mean that the two sides have concluded the broader Bilateral Trade Agreement (BTA), or that the final tariff terms have been settled.

How Did The Negotiations Begin?

The current round of negotiations began after Prime Minister Narendra Modi’s visit to Washington on February 13, 2025. Following his meeting with US President Donald Trump, the two countries announced plans to negotiate a BTA, with the first tranche targeted for completion by autumn 2025. They also set a goal of increasing bilateral trade to $500 billion by 2030.

Commerce and Industry Minister Piyush Goyal travelled to Washington in March for discussions with US officials. The two sides subsequently held further rounds of negotiations, while US Vice-President JD Vance’s visit to India in April helped advance discussions on the terms of reference for the proposed agreement.

The negotiations, however, soon ran into difficulties. On April 2, Trump announced a 26% reciprocal tariff on Indian goods as part of a wider tariff announcement targeting several trading partners. He subsequently paused the higher country-specific tariffs for 90 days, retaining a 10% baseline duty. The pause gave both countries additional time to negotiate, but disagreements over market access remained unresolved.

Agriculture and dairy emerged as particularly contentious issues. The US sought greater access to India's agricultural market, while New Delhi resisted opening sectors that it considers sensitive for domestic farmers and producers. The disagreement over the extent of market access contributed to the failure to meet the initial July deadline.

Tariffs And Diplomatic Tensions Derail Talks

The negotiations became more difficult as trade disagreements coincided with a deterioration in bilateral ties. On July 31, 2025, Trump announced a 25% tariff on Indian goods and threatened an additional 25% penalty linked to India's purchases of Russian oil. The first levy took effect on August 7, while the additional duty came into force on August 27, taking the total tariff burden on several Indian goods to 50%.

Notably, in August last year disagreements over agricultural and dairy imports, market access and India's continued purchases of Russian oil had contributed to the breakdown in negotiations, Reuters reported. A planned visit by a US trade delegation to India was also cancelled.

The period also saw friction over Trump's repeated claims that he had helped broker an understanding between India and Pakistan following Operation Sindoor.

India had launched the military operation on May 7, 2025, and an understanding on the cessation of military action was announced on May 10. Trump repeatedly claimed credit for facilitating the cessation of hostilities, while New Delhi maintained that the understanding was reached directly between the two militaries and rejected the suggestion of third-party mediation.

The Indian Express, in an analysis of comments made by US Commerce Secretary Howard Lutnick, reported that the period in which Lutnick said a trade agreement could have been concluded coincided with the aftermath of Operation Sindoor and Trump's mediation claims. Lutnick had said the agreement could have been finalised between the announcement of US trade deals with the UK and Vietnam, but that Modi did not call Trump to close it. India did not accept this account as the explanation for the delay. The episode nevertheless added to the diplomatic strain surrounding negotiations that were already facing substantive disagreements.

Why Is Agriculture A Sticking Point?

It is to be noted that agriculture and dairy have been among the most contentious issues in the India-US trade negotiations. India had earlier resisted US demands for greater access to its farm and dairy markets, arguing that imports of subsidised American agricultural products could hurt millions of small farmers, as per a Reuters report. Washington had sought greater access for products such as corn, soybeans, wheat, ethanol and dairy, while New Delhi remained reluctant to open these sectors.

The issue is also politically sensitive in India, where agricultural livelihoods make market-access concessions difficult for any government. The concerns resurfaced after the interim framework was announced in February 2026. Farmer organisations and Opposition parties objected to proposed concessions on products such as dried distillers' grains (DDGs), with concerns that cheaper imports could affect domestic producers and potentially allow genetically modified feed products into the country.

Under the February 7 joint statement, India agreed to eliminate or reduce tariffs on a range of US agricultural products, including DDGs, red sorghum for animal feed, tree nuts, fresh and processed fruit, and soybean oil. The US, in turn, agreed to apply an 18% reciprocal tariff on specified Indian goods and said it would remove reciprocal tariffs on a wider range of products, subject to the successful conclusion of the interim agreement.

However, the framework reaffirmed the two countries' commitment to continue negotiations on the broader Bilateral Trade Agreement. It was not the conclusion of the full trade deal.

What Does The Latest Assurance Mean?

The tariff position has also changed since the February framework. In February 2026, the US Supreme Court struck down Trump's use of emergency powers under the International Emergency Economic Powers Act to impose sweeping reciprocal tariffs. The US subsequently moved to a 10% baseline tariff, while other tariff measures and investigations remained relevant to the treatment of imports from individual countries.

India's demand for a comparative advantage has therefore become an important part of the negotiations. In September, Goyal told Bloomberg that India would finalise the agreement once Washington offered a preferential tariff rate compared with those available to its competitors, including Vietnam and Bangladesh.

The latest reported assurance suggests that Washington is considering India's demand as the two sides work towards finalising the first tranche of the agreement. In October the US was reportedly considering more favourable tariff terms for India than those available to competing Asian economies. The first tranche was also nearing completion.

The negotiations have continued at the official level. Reuters reported on Tuesday that a US team had visited India earlier in the month for discussions on customs and trade facilitation, and that both sides were continuing talks to finalise the first tranche.

For India, securing more favourable tariff treatment could help its exporters compete in the US market, particularly in labour-intensive sectors where it faces competition from other countries. But the assurance does not settle the wider disagreements over market access, agriculture and the terms of the final agreement.