USA PRESSURE TACTIC FOR TRADE CONCESSION: CHALLENGES AND WAY FORWARD

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Context

The USA imposed a 25% tariff on Indian imports, increasing the total tariff to 50%, prior to planned trade talks on 25th August. This move is linked to US efforts to gain leverage for trade concessions.

Present Status of India-USA Relations  

Defense: Signed foundational defense agreements and the US recognizes India as a Major Defense Partner.

• Recent collaborations include manufacturing GE's F414 engine in India and cooperation on autonomous systems.

Trade and Investment: US is India's largest trading partner. Bilateral trade in goods and services reached an $212.3 billion in 2024.

• US was the 3rd largest source of FDI for India in FY 2023-24, with 9%.  
• The US is India's top export market, making up 18% of exports and 2.2% of GDP.

Critical and Emerging Technologies: Initiative on Critical & Emerging Technologies (iCET) was launched in 2023. Collaboration covers advanced telecommunications (Open RAN, 5G/6G), AI, quantum computing, outer space, and defense technology transfer.

Space Exploration: India joined the US-led Artemis Accords. Joint efforts include the NISAR mission and a framework for human spaceflight.

Counter-terrorism: Cooperation includes information exchange, capacity building, and dialogue through a Joint Working Group. The US recently approved the extradition of a suspect in the 26/11 attacks.

Multilateral Forums: The US supports India's permanent membership in the UN Security Council and the Nuclear Suppliers Group. They collaborate on global challenges like climate change through initiatives such as the International Solar Alliance and the Global Biofuels Alliance. 

Recent developments

• July 30, 2025: US announced a 25% tariff on all Indian imports, quoting concerns about India's trade practices, high tariffs, and its purchases of Russian oil and military hardware.
• August 6, 2025: US imposed an additional 25% tariff on imports from India, in response to India's continued purchase of Russian oil, raising the total duty on Indian goods to 50%. 

 What is the reason behind the recent USA tariff imposition on India?

Addressing Trade Deficits: US goods trade deficit with India totaled $45.7 billion in 2024.

• Tariffs aim to make Indian goods more expensive, reducing US imports and narrowing the trade deficit.

Market Access Issues: Concerns over India's tariffs and regulations impacting US exports in sectors like agriculture, dairy, and medical devices.

Geopolitical Alignment (Russia Factor): The US views India's continued energy and defense ties with Russia, especially the purchase of Russian oil, as undermining efforts to isolate Russia following the Ukraine war.

• The US views India as a potential partner to balance China's influence in the Indo-Pacific. However, India's relations with Russia and China (e.g., BRICS, SCO membership) create complexities for the US strategy.

"America First" Ideology: Pressure tactics as part of "America First" strategy to prioritize US economic interests and exert leverage in trade negotiations. 

• Tariffs serve as leverage to demand greater market access for US goods in India.

Challenges for India due to US pressure tactics

Geostrategic Challenges:  India aims to balance its strategic ties with Russia with the growing partnership with the US.

• India's membership in diverse groupings like QUAD and BRICS reflects this multi-polar approach.

Economic Challenges: Higher tariffs reduce the competitiveness of Indian exports to the US.

• Experts expect potential 40-50% cut in US-bound exports, impacting nearly 55% of India's total exports to the US.  
• Imposition of high tariffs creates uncertainty for exporters, cancelled orders, impacting MSMEs.

Sector-Specific Impact

• Electronics: India, a major iPhone exporter to the US (44% of US iPhone imports in Q2 2025), faces a direct threat.
  • Tariffs make India-assembled smartphones 25% more expensive in the US, prompting manufacturers like Samsung to shift production to lower-tariff countries like Vietnam.
• Pharmaceuticals: India, known as the "pharmacy of the world," supplies 40-65% of all generic medicines to the US.
  • A 25% tariff on pharmaceuticals make Indian generic exports "unviable," leading to drug shortages and increased healthcare costs in the US.
• Gems and Jewelry: The US, India's largest market for gems and jewelry (over $10 billion in 2024), threatening jobs and market share.
• Textiles and Apparel: Concern over mass layoffs as US buyers pause shipments and consider alternatives from countries like Bangladesh or Vietnam, which benefit from lower tariffs.

Slowing Growth: Tariffs risk slowing exports and investment, adding pressure on the rupee, and leading to a downward revision of India's FY26 GDP growth forecast.

• The US blocking of appointments to the WTO Appellate Body (since 2019) has weakens the multilateral dispute resolution system, harder for India to resolve trade disputes.
• Pressure to meet US demands can curb India's ability to implement domestic policies, such as agricultural subsidies.

Development Challenges: US pressure on Russian oil imports affects India's energy security strategy, which prioritizes affordable and diverse energy sources.

• Over-reliance on a single market, like the US, can create vulnerability to trade shocks and pressure tactics.
• Aggressive pressure tactics strain the strategic partnership, impacting other areas of cooperation. 

India's response to US pressure tactics

Strong Condemnation: Ministry of External Affairs called the US decision "unfair, unjustified, and unreasonable," claiming India's right to "take all necessary measures" to safeguard its "national interests and economic security".

Strategic Dialogue and Engagement: India has not announced immediate reciprocal tariffs, indicating a desire to de-escalate tensions and keep negotiation channels open.  

• India emphasized continued dialogue, with a US negotiating team expected in New Delhi later in August 2025 for trade talks. 

Diversification of Trade Relations: India is exploring new Free Trade Agreements (FTAs) with regions like the EU and countries such as the UK and those in Africa and Latin America.

Strengthening Domestic Competitiveness: India is implementing policies like the Production Linked Incentive (PLI) Scheme to boost domestic manufacturing and exports.

• Focuses on improving logistics, providing credit and export insurance to MSMEs, and leveraging digital trade tools to enhance competitiveness and resilience against external shocks.
• Focusing on skill development to enhance competitiveness, including supporting MSMEs through initiatives like the Emergency Credit Line Guarantee Scheme (ECLGS) that have benefited over 1.19 crore MSMEs.

Advocacy for Multilateralism: Promoting a rules-based multilateral trading system and stresses the importance of a fully functional WTO dispute settlement mechanism.

• India is leveraging its position in forums like the G20 to promote a rules-based international trade order.

Firmness and Flexibility: India's response demonstrates both firmness in protecting national interests and flexibility in diplomatic engagement. 

• India repeated its commitment to protect farmers, small businesses, and entrepreneurs in trade negotiations, resisting US demands for open access to its agricultural and dairy markets. 

Way forward for India to navigate the US pressure tactics

Prioritize Bilateral Dialogue and Engagement: Continue high-level bilateral talks through platforms like the Trade Policy Forum.

• Explore an interim, sector-specific trade deal (e.g., pharmaceuticals, digital services, agriculture) to stabilize relations and build trust.

Accelerate Market Diversification: Fast-track FTA negotiations with key partners like the EU, UK, ASEAN, and countries in Africa and Latin America to expand export markets and reduce dependence on a single market.

• Explore rupee-based trade and regional supply chain integration to mitigate risk.

Strengthen Domestic Resilience: Scale up initiatives like the Make in India, Atmanirbhar Bharat, PLI Scheme to boost domestic manufacturing and make Indian industry globally competitive.

• Modernize logistics infrastructure and provide targeted support to MSMEs, including credit, export insurance, and digital trade tools.
• Leverage the current challenge to initiate economic reforms to strengthen Economy.
• Implement measures like lower corporate taxes and improved logistics to attract global businesses.

Leverage Geopolitical Alliances: Utilize platforms like QUAD, I2U2, and G20 to strengthen India's strategic position and negotiate more favorable trade terms.

Advocate for Multilateralism and WTO Reform: Collaborate with like-minded developing countries to advocate for a more equitable global trading system, restoration of the WTO Appellate Body to ensure an effective dispute resolution mechanism. 

Source: INDIANEXPRESS