The India–US trade deal represents a pivotal step in strengthening one of the world’s most significant bilateral partnerships. With trade crossing $200 billion in 2023, both democracies seek to solidify their economic ties through a structured agreement. While tariff and regulatory challenges persist, the proposed deal carries immense potential—not just economically, but geopolitically—positioning India and the US as key allies in a rapidly evolving global order.
LT CDR NITIKA RAI (RETD), FORMER INDIAN NAVY OFFICER
SENIOR CONSULTANT ERNST & YOUNG
FOR NEWS ANALYTICS
a 5 mins read.
India and the United States—two of the world’s largest democracies—have witnessed a dynamic evolution in their bilateral relations over the past two decades. Once mired in ideological differences during the Cold War, the two countries have gradually forged a strong strategic partnership based on mutual economic interests, defence cooperation, and shared values. One of the cornerstones of this relationship is trade, which has expanded considerably over the years. However, efforts to finalise a comprehensive trade deal have faced several roadblocks due to tariff disagreements, intellectual property rights concerns, and regulatory barriers. Despite these challenges, progress towards a trade agreement between India and the US is crucial not just for economic reasons but also for its broader geopolitical ramifications.
INDIA–US TRADE RELATIONS
Trade relations between India and the US have grown significantly since the liberalisation of the Indian economy in 1991. From a modest $5.6 billion in 1990, bilateral trade reached nearly $200 billion in 2023, making the US India’s largest trading partner. This economic relationship spans goods and services, investments, and technology exchanges.
Despite this robust trade volume, the absence of a free trade agreement or even a limited trade pact has long been seen as a gap in bilateral ties. Over the past decade, both countries have engaged in negotiations to resolve key trade disputes and move towards a more structured agreement. The issues have ranged from India’s high tariffs on agricultural and tech products to US concerns over market access and data localisation policies. Several attempts to finalise a “mini trade deal” during the Trump and Biden administrations have faltered, but both sides remain committed to deepening economic ties.
STRENGTHENING TIES
The proposed India-U.S. trade deal had garnered significant attention during U.S. Vice President JD Vance’s recent visit to India from April 21 to 24, 2025. This visit underscored the deepening bilateral ties between the two nations, with discussions focusing on enhancing trade relations, defence cooperation, energy partnerships, and strategic technological collaborations.
During his visit, Vice President Vance and Indian Prime Minister Narendra Modi hailed the “significant progress” in negotiations for a mutually beneficial India-U.S. Bilateral Trade Agreement. The agreement aims to address various trade barriers and facilitate smoother exchanges between the two countries. India has proposed eliminating 100% of its tariffs on U.S. goods, including agricultural products like bourbon whiskey, almonds, cranberries, and lentils. In return, the U.S. is expected to reduce tariffs on Indian exports such as steel, aluminium and certain agricultural items. This reciprocal tariff reduction is anticipated to boost bilateral trade, which currently stands at approximately $191 billion, with a target to reach $500 billion by 2030.
Energy cooperation emerged as a central theme during Vice President Vance’s discussions with Indian leaders. The U.S. expressed interest in ramping up energy exports to India, emphasising the potential benefits of affordable and reliable energy sources for India’s growing industrial needs. The amendment of India’s Civil Liability for Nuclear Damage Act was highlighted as a significant step toward enabling U.S. companies to export nuclear reactors to India. Additionally, the U.S. encouraged India to explore its offshore natural gas reserves and critical mineral supplies, with the aim of fostering energy co-production and reducing dependence on unfair competitors.
The defence sector also featured prominently in the discussions between Vice President Vance and Prime Minister Modi. The U.S. offered to sell advanced defence equipment, including Javelin missiles and Stryker vehicles, to India. Furthermore, the two leaders explored avenues for enhanced cooperation in strategic technologies, aiming to bolster India’s defence capabilities and technological prowess. This collaboration is seen as a step toward aligning the defence strategies of both nations and ensuring regional stability.
ADDRESSING TRADE BARRIERS
In addition to tariff reductions, both nations are actively working to remove bureaucratic barriers affecting key commodities like apples, shrimp, and alcoholic beverages. Efforts are underway to streamline customs procedures and import-export policies to facilitate smoother bilateral trade. These measures are expected to benefit exporters and importers on both sides, enhancing economic collaboration in the agriculture and seafood sectors.
The positive developments in trade negotiations have had a favourable impact on investor sentiment. Following President Trump’s comments suggesting India’s proposal for a zero-tariff trade deal, Indian equity markets experienced a surge. The optimism is attributed to the anticipated benefits of the trade agreement, including increased foreign investment and enhanced economic growth prospects.
A potential trade deal would address tariffs, digital trade, IPR, and services, fostering economic growth while promoting innovation, investment, and sustainable development.
IMPLICATIONS OF THE TRADE DEAL
Beyond economic benefits, an India–US trade agreement carries significant geopolitical weight. The implications of such a deal would be felt across several domains.
Countering China’s Influence in Asia: A deeper trade partnership between India and the US directly supports the larger Indo-Pacific strategy aimed at balancing China’s rising dominance. As China expands its Belt and Road Initiative (BRI) and asserts itself aggressively in the South China Sea and along the Line of Actual Control (LAC), the US sees India as a critical counterweight. Strengthening economic ties makes India less dependent on Chinese imports and supply chains, while enhancing the US presence in South Asia.
Moreover, an India–US trade deal would be a powerful signal to other regional powers, encouraging them to reduce economic reliance on China and align more closely with the Indo-Pacific coalition that includes Japan, Australia, and the US (i.e., the Quad).
Reinforcing the Rules-Based International Order: Both India and the US advocate for a rules-based international system, particularly in trade. A bilateral agreement would showcase the ability of democracies to collaborate on complex economic issues while upholding transparency and fairness. This contrasts sharply with China’s state-led economic model and opaque trade practices. By setting high standards in labour rights, environmental regulations, and digital governance, the India–US trade deal could set a precedent for future regional and multilateral agreements.
Strengthening the Quad Alliance: Economic cooperation is a vital pillar of the Quad—a strategic forum comprising India, the US, Japan, and Australia. While the Quad has largely focused on security and vaccine diplomacy, adding a robust economic component, starting with an India–US trade deal, would strengthen the grouping. It could also pave the way for a larger Indo-Pacific economic framework involving multiple Quad and ASEAN nations.
Boosting India’s Global Standing: For India, securing a major trade deal with the world’s largest economy would boost its global profile and economic credibility. It would signal to global investors that India is open for business and capable of entering high-standard trade agreements. This could attract greater FDI, strengthen India’s manufacturing base under “Make in India,” and support ambitions to become a global supply chain hub.
Moreover, as India takes on a larger role in multilateral forums like the G20 and BRICS, a trade deal with the US would give it greater leverage in shaping global economic governance.
Domestic Reforms and Economic Modernisation in India: To meet the standards expected in a trade deal with the US, India may need to undertake key structural reforms, such as improving labour laws, enhancing IPR protection, and easing regulatory bottlenecks. These changes would not only satisfy trade obligations but also improve India’s overall ease of doing business and global competitiveness.
Impact on Defence and Strategic Cooperation: Though not directly tied to trade, economic agreements often pave the way for deeper defence cooperation. The US is already a major defence partner of India, with increasing joint exercises, arms sales, and technology transfers. A stable economic foundation would reinforce mutual trust and create more avenues for collaboration in high-tech sectors such as aerospace, cybersecurity, and artificial intelligence.
Energy Security and Climate Cooperation: Energy trade is another crucial area where both nations stand to benefit. The US is a key supplier of LNG and crude oil to India, helping it diversify away from Middle Eastern and Russian sources. A formalised trade agreement could streamline energy trade, reduce costs, and support India’s transition to cleaner fuels. It could also foster cooperation on climate technology, including green hydrogen, solar energy, and electric vehicles.
Geopolitically, the agreement counters China’s influence, strengthens the Quad, and boosts India’s global profile through strategic and economic cooperation with the United States.
CHALLENGES AND ROADBLOCKS
Despite the strategic rationale, several hurdles remain in concluding a comprehensive trade deal. Both countries face domestic pressures from industries wary of foreign competition. Indian farmers and small businesses are especially sensitive to liberalisation. Divergent approaches to digital privacy, pharmaceuticals, and agricultural standards pose significant barriers.
Changing leadership in either country could delay or derail negotiations. Indian general elections in 2024 and the US presidential race in 2024–2025 complicate timelines. While both countries are aligned on many fronts, India continues to pursue strategic autonomy, including maintaining ties with Russia and avoiding formal military alliances, which occasionally causes friction with US expectations.
A trade deal between India and the United States is more than an economic arrangement—it is a strategic imperative in the 21st-century geopolitical landscape. Such an agreement would deepen bilateral ties, enhance economic resilience, and contribute to a more stable Indo-Pacific region. While challenges remain, the long-term benefits in terms of economic modernisation, strategic alignment, and global influence make the pursuit of this trade deal a worthwhile endeavour. As the global order shifts and new alliances emerge, the India–US partnership, anchored by strong trade ties, could well become a defining force in shaping the future of global geopolitics.
(Lt Cdr Nitika Rai (Retd), former Indian Navy Officer and senior consultant at Ernst & Young. The views expressed are of the author and do not necessarily reflect the views of The News Analytics Journal.)
Major Highlights
- India–US trade nears $200 billion, establishing the US as India’s top trade partner.
- The deal may cover tariffs, digital rules, IPR, labour, environment, and trade.
- A trade pact boosts Indo-Pacific stability, strengthens the Quad, and counters China’s influence.
- India must reform labour, regulatory, and IPR laws to meet US standards.
- Deal boosts defence, energy, and climate ties, advancing India–US strategic partnership.
