India and US inch closer to a trade deal which could mitigate the negative impact of tariffs

As trade negotiations between India and the United States accelerate, an imminent signing of a bilateral trade agreement looks on anvil. The deal that could reshape economic relations between the world’s two largest democracies is most likely to be hammered out before the July deadline.

US President Donald Trump’s recent remarks — “I think we will have a deal with India”— signal growing optimism in Washington. With a July deadline looming on the 90-day pause of reciprocal tariffs, both nations are racing against time to finalise terms. President Trump’s assertion of progress came soon after US Commerce Secretary Howard Lutnick confirmed that a deal is “done,” pending approval from India’s parliament and Prime Minister Narendra Modi.

By all reckoning, the proposed agreement is ambitious and extensive, spanning tariff reductions, market access, and sector-specific concessions. India’s reported willingness to offer a rare “forward most-favoured-nation” clause-ensuring the US receives equal or better tariff terms offered to future partners-demonstrates the strategic importance New Delhi places on this deal.

This provision, seldom granted by India, underscores a long-term commitment to deepening trade ties with Washington. Negotiations have focused on 19 out of 24 categories of traded goods, with contentious sectors like agriculture and military equipment reserved for a later phase.

Key components of the proposed India-US trade deal include significant tariff reductions and expanded market access on both sides. India has offered to cut import duties on US agricultural exports — such as frozen meats, poultry, and fruits — from rates as high as 100 per cent to as low as five per cent. In return, India is seeking improved access to the US market for its labour-intensive sectors, including textiles, toys, gems and jewellery, furniture, and leather goods, aiming to displace Chinese suppliers.

Additionally, India is pushing for long-term guarantees of preferential treatment for its pharmaceutical products and industrial equipment. To ensure the agreement remains relevant over time, both nations are incorporating a forward-looking “most-favoured-nation” clause and phased tariff reductions that adapt to shifting global trade dynamics.

If signed, the India-US trade deal would signal a strategic realignment in global trade with wide-ranging implications. Beyond immediate economic benefits, it would solidify India’s role as a key ally in Washington’s Indo-Pacific strategy, particularly as the US looks to reduce its dependency on Chinese supply chains. India’s strengths in sectors like pharmaceutical, electronics, and semiconductors position it as a natural alternative.

The deal could also undercut China’s dominance as the world’s manufacturing hub, offering a model for future US partnerships with other Asian democracies. For India, preferential treatment for exports from labour-intensive sectors could generate millions of jobs and revitalise domestic manufacturing, while creating a more stable and predictable trade environment.

On the American side, the agreement would grant access to India’s vast consumer market, particularly for agricultural and processed food exports — an attractive prospect as US-China trade tensions persist.

Perhaps most significantly, the deal could accelerate the realignment of global supply chains, embedding India more deeply into US-centric industrial and technological ecosystems. With strong political will on both sides, a finalised agreement could reshape not just bilateral trade but the broader global order, ushering in a new era where democratic economies lead in forging transparent, resilient, and forward-looking trade frameworks.

The potential India-US trade deal comes amid the broader fallout of President Trump’s aggressive tariff strategy, which has disrupted global trade in a big wayu. By imposing sweeping tariffs on allies and adversaries alike, Trump challenged the multilateral system and sparked retaliatory measures that unsettled markets and supply chains. The India-US trade deal, if concluded, would mark a sharp turn from Trump’s disruptive tariff era — where sweeping duties strained global ties and raised domestic costs — toward a more strategic, cooperative model of trade.

The proposed deal reflects a growing preference for targeted agreements that align economic incentives with long-term geopolitical interests. While intended to protect US industries, these tariffs often raised costs for American consumers and businesses.

The India deal, if finalised, would represent a strategic pivot — using targeted trade liberalisation to achieve economic and geopolitical goals. It suggests a shift from blunt tariff tools toward more collaborative, mutually beneficial trade agreements.