A Shifting Tide: US-India Trade Talks Stall Amidst Tariffs and Geopolitical Currents

WASHINGTON – What began in early 2025 with optimistic handshakes and ambitious trade goals between the United States and India is now facing a stark reality: a stalled trade agreement, escalating tariffs, and a growing sense of frustration on both sides. The initial momentum, symbolized by a February meeting between President Donald Trump and Prime Minister Narendra Modi just hours after the announcement of “reciprocal tariffs,” has given way to a complex web of disagreements, political pressures, and competing priorities.

From Bilateral Promise to Tariff Tensions

The initial pledge to double bilateral trade to $500 billion by 2030, with Modi stating teams would “work on concluding very soon, a mutually beneficial trade agreement,” now feels distant. By December, India found itself among the countries facing the highest tariffs imposed by the US – levies that even surpassed those levied on China, a frequent target of Trump’s trade rhetoric. This dramatic shift has injected significant uncertainty into the economic relationship between the world’s largest and oldest democracies.

Experts highlight the inherent economic incentives for both nations to reach a deal. The US is actively seeking to diversify its supply chains away from China, and India offers a compelling alternative with its scale and manufacturing capabilities. Simultaneously, New Delhi needs access to the US market to sustain its export-led growth ambitions. However, these incentives are being overshadowed by political roadblocks and specific sticking points.

The Russian Oil Factor and Energy Security

A significant source of tension revolves around India’s continued purchase of Russian oil. Washington has pressured India to curtail these imports, arguing they enable Moscow to circumvent Western sanctions imposed in response to the war in Ukraine. In August, the US imposed an additional 25% tariff on Indian imports, bringing total duties to as high as 50%, specifically aimed at deterring New Delhi from buying Russian energy.

While the US acknowledges some reduction in India’s reliance on Russian oil, President Vladimir Putin recently affirmed Moscow’s willingness to continue “uninterrupted shipments of fuel to India.” India maintains its energy sourcing decisions are based on “the dynamics in the global market, as also the imperative for us to provide energy at affordable rates to our 1.4 billion people,” refusing to intervene in the private sector’s sourcing choices.

Agricultural Impasse: A Core Obstacle

Beyond energy, agricultural access remains a major stumbling block. The US seeks greater access to the Indian market for its genetically modified crops and dairy products, but these face strong opposition from India’s powerful farming lobby. As Nomura’s chief economist, Sonal Varma, points out, agriculture is the “primary stumbling block.” The US Trade Representative, Jamieson Greer, recently told the Senate that there’s “resistance in India to certain row crops and other meats and products,” characterizing the issue as a “very difficult nut to crack.”

This resistance is further complicated by upcoming state elections in key agricultural regions like West Bengal, Tamil Nadu, and Kerala, followed by Uttar Pradesh in 2027 – India’s largest agricultural state – making any concessions on agricultural trade politically sensitive. According to the World Bank, agriculture accounts for approximately 15.9% of India’s GDP and employs over 41% of the workforce, highlighting the sector’s significant economic and political weight.

Economic Repercussions and a Cautious Outlook

The delay in a trade deal is already taking a toll. Analysts estimate that a prolonged absence of an agreement could shave approximately 0.5 percentage points off India’s GDP growth. Goldman Sachs anticipates a 0.6 percentage point impact due to US tariffs. Indian exports experienced a sharp fall in October, although they have since shown some recovery. Despite weathering the initial shock of the 50% tariffs, the uncertainty continues to weigh on markets, particularly those reliant on the US.

The situation isn’t without consequences for the US either. Wayne Winegarden, a senior fellow at the Pacific Research Institute, argues that the punitive tariffs “harm U.S. consumers who will spend more on a wide range of goods,” and that the deteriorating relationship is detrimental to both countries. Small US businesses are reportedly taking on debt to cope with the increased costs associated with the tariffs, fearing a potential financial disaster.

Right now, the most recent estimates show that India lost about $250 billion in just 2024 as a result of air pollution … we may not walk the pavement and do as much shopping, people may avoid Delhi, because, from a tourism perspective, [it is] so incredible.

— Gaurav Gupta, global managing partner, Dalberg Advisors

A Strategic Partnership in Question?

Despite the economic headwinds, both sides continue to emphasize the strategic importance of the relationship. Talk of India being a “important strategic partner” and Prime Minister Modi being “a great friend” persists, as evidenced by recent social media posts from the US Embassy in India on X (formerly Twitter). However, experts remain skeptical about a breakthrough in the near future. Citi’s chief India economist, Samiran Chakraborty, recently stated that the absence of a trade deal “has been a serious overhang on India.”

As the year draws to a close, the outlook remains uncertain. Whether the New Year will bring fresh ideas and a renewed commitment to resolving these complex issues remains to be seen. The future of this crucial bilateral relationship hangs in the balance.