By Sanskriti Global Exports by Himanshu Gupta
Political Theatre vs. Economic Reality: Unpacking the Stalled US-India Trade Negotiations
In the world of international trade, headlines can often be misleading, mistaking the smoke of political rumour for the fire of economic reality. A recent report, suggesting a promising US-India trade deal was scuttled merely because Prime Minister Modi failed to place a timely call to then-President Trump, is a prime example of such a distraction. The Indian government has, quite rightly, dismissed this narrative as “completely baseless.”
For the Indian import-export professional, whose livelihood depends on the smooth flow of goods and capital, it's crucial to look beyond this political theatre. The story isn't about a missed phone call; it's about persistent, complex, and unresolved differences in trade policy and market access ambitions. As a trade analyst, my advice is to ignore the noise and focus on the fundamentals. The failure to conclude what was often dubbed a “mini-deal” or a “limited trade package” is rooted in substantive disagreements that predate and postdate any single phone call. Understanding these core issues is the key to navigating the uncertain terrain ahead.
A Factual Summary: The Real Story Behind the Stalemate
The negotiations for a bilateral trade agreement are not a recent development. Efforts have been ongoing for years, intensifying after the Trump administration revoked India's benefits under the Generalized System of Preferences (GSP) in June 2019. This move, which removed duty-free access for over $6 billion worth of Indian exports to the US, was a significant blow. The US cited India's failure to provide “equitable and reasonable access to its markets” as the primary reason. In response, India implemented retaliatory tariffs on 28 US products, including almonds, apples, and walnuts.
Against this backdrop of tit-for-tat tariffs, both sides began working towards a limited trade deal to de-escalate tensions. This was never intended to be a comprehensive Free Trade Agreement (FTA) but rather a foundational pact to resolve some of the most pressing irritants. The core sticking points, however, proved insurmountable and remain largely unchanged today:
- US Demands: The United States has consistently sought greater market access for its agricultural products, particularly in the dairy sector, where India’s stringent certification requirements (related to non-vegetarian feed) are a major hurdle. Washington also pushed for tariff reductions on a range of other goods, including medical devices, and sought concessions on India’s pricing caps for medical equipment like stents and knee implants.
- Indian Demands: India's primary objective was the restoration of its GSP benefits, which would restore the competitiveness of key export sectors. New Delhi also sought better market access for its own agricultural products, such as grapes and mangoes, and for its robust pharmaceutical and IT services sectors.
Beyond these specific goods, broader systemic issues like intellectual property rights (IPR) protection, digital trade, and data localization policies have long been points of friction. The so-called “mini-deal” stalled not due to a communication lapse, but because the gap between these competing demands was too wide to bridge with a simple, politically expedient agreement. The denial from Commerce and Industry Minister Piyush Goyal's office simply confirms what trade veterans already knew: the issues are technical and structural, not personal or procedural.
Implications for Indian Import-Export Professionals
The continued stalemate has direct, tangible consequences for businesses on the ground. It's essential to move past the “what if” scenarios and strategize based on the current reality. Here are the key implications:
- Continued Tariff Uncertainty and Cost Pressures: The absence of a deal means the existing tariff structure remains in place. Indian exporters of steel and aluminum still face US tariffs, while importers of specific American goods (like apples, walnuts, and high-end motorcycles) continue to bear the cost of India's retaliatory tariffs. This lack of predictability complicates pricing strategies, squeezes margins, and makes long-term planning difficult.
- GSP Benefits Remain a Distant Hope: For exporters in sectors like engineering goods, auto components, textiles, and leather products, the suspension of GSP is a significant competitive disadvantage. Their products are more expensive in the US market compared to those from competitor nations that still enjoy GSP benefits, such as Thailand or Indonesia. Businesses in these sectors must aggressively focus on cost optimization and value addition to remain competitive.
- The 'China Plus One' Opportunity Faces Headwinds: India is actively positioning itself as a viable alternative to China in global supply chains. A robust trade relationship with the US is central to this strategy. The inability to finalize even a limited trade deal sends a hesitant signal to multinational corporations considering shifting their manufacturing base to India. It raises questions about policy stability and the ease of doing business, potentially slowing down foreign direct investment in key manufacturing sectors.
- Increased Importance of Other Trade Pacts: With the US-India track moving slowly, the FTAs India has signed with the UAE and Australia, and the ongoing negotiations with the UK and the EU, take on heightened strategic importance. Smart businesses will proactively explore these markets to diversify their risk. Leverage the benefits of these existing and upcoming agreements to build resilience and reduce over-reliance on the US market.
- Sector-Specific Regulatory Hurdles Persist: The underlying issues that stalled the deal continue to affect specific industries. Importers of US medical devices must navigate India's price control regime. Food importers must contend with complex sanitary and phytosanitary (SPS) standards. These are not just negotiating points; they are operational realities that require careful compliance and advocacy through industry bodies.
Conclusion: Focus on Fundamentals, Not Folklore
The narrative of a “missed call” derailing a major trade deal is an oversimplification that does a disservice to the complexities of international commerce. The reality is that the US-India trade relationship is mature enough to be defined by deep-seated economic interests, not diplomatic pleasantries. The stalemate is a result of genuine divergence on critical issues of market access, tariffs, and regulatory frameworks.
For the Indian import-export community, the path forward is clear. The focus must be on agility, diversification, and operational excellence. While we must continue to advocate for a comprehensive trade agreement that benefits both nations, we cannot put our business strategies on hold waiting for it. The immediate future requires navigating the current tariff environment, maximizing opportunities in alternative markets through other FTAs, and building resilient supply chains that can withstand geopolitical and economic uncertainty. The real deal will be struck not through a single phone call, but through painstaking, technical negotiations that address the fundamental economic concerns of both sides.
Source: Original