At the moment, India’s trade relations with the US appear to be precariously poised. There is much ado over Washington imposing higher tariff on Indian goods compared to its South Asian neighbours. The possible reasons arise from strategic and geopolitical considerations, apart from trade and economy. India-US goods trade totalled roughly $130 billion last year, with India running a surplus of almost $46 billion. In comparison, Pakistan-US trade volumes stood under $6 billion, with a more balanced two-way flow. With Sri Lanka, US trade was an estimated $3.4 billion in 2024, while with Bangladesh the amount was about $10.6 billion.
Hence, while bilateral trade negotiations are on between New Delhi and Washington, a higher levy by the US offers it a greater bargaining power. Tariffs wield greater leverage when trade volumes are large, and a 25 per cent levy on India translates into a heavier economic blow. This is because the US has long expressed “frustration” over its persistent trade deficit with India. President Donald Trump has repeatedly criticised India's high tariffs and what he perceives as “obnoxious non-monetary trade barriers”.
According to a recent document issued by the Office of the United States Trade Representative: “India’s average applied tariff rate on agricultural products is 39 per cent while the U.S. average applied tariff on agricultural products is just 5 per cent.” Nonetheless, India's protective stance, especially on agriculture, is a non-negotiable policy to safeguard the livelihoods of its farmers, ensure national food security, and address deep-seated cultural and health concerns. The country’s agriculture sector is the backbone of its rural economy. The vast majority of farmers are small and marginal, making them vulnerable to sudden competition from large, subsidised producers from abroad.
But the US wants India to open up multiple sectors and remove barriers on a range of American goods. These include, apart from agricultural products, industrial and manufactured goods, certain motor vehicles, semiconductors, telecom equipment, cross-border data flows, etc. The tariff restructure serves a diplomatic purpose too. China has been a close ally of Pakistan, and is closer to Bangladesh and Sri Lanka. While India has had diplomatic and physical skirmishes with China and Pakistan, India’s relation with Bangladesh and Sri Lanka has ebbed since regime changes in the latter two countries.
Thus, White House extending a friendly hand to these South Asian nations puts apparent pressure on both the Elephant and Dragon. The US has been trying to reach out to Bangladesh and Sri Lanka to strengthen its foothold in this part of the world. Till now, it has been Pakistan that has been consistently an US ally, despite its fragile economic framework. Geopolitically, Pakistan offers a good listening post to monitor Iran, Afghanistan, China, and Russia. US has always relied on Pakistan for covert operations in this part of the world. Those in power in Islamabad (government) and Rawalpindi (army) have been pliant and malleable. The lower tariff on Pakistan is a clear incentive to maintain and deepen this transactional relationship. And all this while, Pakistan has historically been a source of tension and distrust for India.
Meanwhile, Washington has been warily watching India’s influence in the international arena. In the New Delhi chapter of the G-20 summit, India successfully kept Russia from being directly accused of a “war in Ukraine”. Trump views BRICS’ push for de-dollarisation as a direct threat to American financial hegemony. Tariff threats can be a deterrent to such moves too. With de-dollarisation, bilateral trades in future can be done through a common currency and cross-border payment systems. India pays for its Russian oil imports under a dedicated Rupee-Rouble settlement mechanism.
Among BRICS members, India has been slapped with a 25 per cent reciprocal tariff rate, which for South Africa is a higher 30 per cent. While there is a tariff pause with China, Russia is already facing sanctions. And Brazil faces an additional 40 per cent ad valorem duty on most imports (over the 10 per cent baseline), with some exemptions.
New Delhi has already alleged that the US (along with EU) is targeting it “for importing oil from Russia after the commencement of the Ukraine conflict”. However, it appears that the direct import from Russia may not be the only reason for the White House to slap a higher tariff on India.