No trade deal is better than an unfair one

Introduction

In the India–USA trade relationship, negotiations are near conclusion, with a possible leaders’ meeting in Kuala Lumpur (October 26–28) to seal terms. US tariffs up to 50% are already hurting Indian exports. The endgame risks are last-minute changes, new demands, and a broad digital “non-discrimination” clause that can shrink policy space. India should seek real tariff relief without sacrificing farmers, fishers, data and tax tools, or strategic autonomy. If balance is missing, walking away is better than a bad deal. No trade deal is better than an unfair one.

Current India–USA Trade Relationship

• Bilateral trade is about $190–191 billion.
• The US has been India’s largest trading partner and top export market in recent years.
• Both sides aim for $500 billion by 2030.
• Shares in India’s trade: The US accounts for ~18% of India’s goods exports, ~6.22% of imports, and ~10.73% of total merchandise trade.

Negotiating track

After a pause, India–USA trade negotiations restarted. An Indian delegation travelled to Washington on October 15–17 after minister-level rounds, and a possible leaders’ meeting in Kuala Lumpur (October 26–28, ASEAN) was identified as an opportunity to close the deal.

Present Challenges in the India–USA trade relationship

1. Steep US tariffs and export slump: US tariffs up to 50% took effect on 27 August. Exports to the US fell ~37.5% (May–Sep) and ~20% in September. Labour-intensive sectors—textiles, gems and jewellery, engineering goods, chemicals—were hit hardest. India’s trade deficit rose to a 13-month high of $32.15 billion in September. The pressure is immediate and uneven.
2. Last minute demands:There is a record of last-minute changes after official-level understandings. This creates uncertainty at the final stage of negotiations.
3. Dependence risk and supply-chain politics: Tariff weaponisation shows the risk of relying on a few markets. Provisions framed as “resilient supply chains” may target China and affect India’s autonomy to choose trading partners. This adds a geopolitical layer to trade terms.
4. Agriculture and dairy sensitivities: Market access demands persist in agriculture and dairy. India’s stance is shaped by food security, small farmer livelihoods, and fisher interests. These sensitivities make convergence difficult.
5. Digital economy pressures:

US priorities are to block India’s digital taxes, limit India’s use of its data advantage to build domestic champions, and narrow India’s ability to regulate the digital sector.

The specific challenge is the push for a broad “non-discriminatory treatment” clause for digital services.

This would prohibit pro-domestic preferences (for example, requiring government entities to use a homegrown app like Arattai), prevent sharing anonymised government data exclusively with Indian firms, and restrict targeted taxationof activities dominated by US players.

It would cut India’s policy tools to support startups and raise revenue, undermining Atmanirbhar goals.

6. Tighter IP and e-commerce rules Stricter: IP standards can affect generics and affordability of medicines. E-commerce and retail rules intersect with competition and consumer protection, creating friction over regulatory space.
7. Asymmetric tariff-cut patterns Recent: US arrangements with Japan, EU, Vietnam suggest partners cut MFN tariffs widely, while US cuts go to mid-teens (~15–20%). This pattern of asymmetry reduces room for balanced outcomes.
8. Trade talks tied to India’s Russian oil imports: Trade discussions are entangled with expectations on Russian oil. India’s imports still cover about one-third of total oil. A rapid change is operationally difficult, adding energy security stress to the trade track.
9. Negotiation uncertainty and rupee volatility: Headlines around negotiations coincide with rupee volatility and RBI smoothing. This macro uncertainty complicates pricing, contracts, and planning for exporters during the negotiation window.

Way Forward

India’s approach

1. Insist on a signed, detailed text before any public announcement. Defer new endgame asks to a second phase after inter-ministerial consultation.
2. Protect core sectors (Agriculture/dairy/fishers): India should keep food security and the livelihoods of farmers and fishers non-negotiable.
   On digital issues, India should reject broad “non-discrimination” language that would block domestic preference, limit data-based policies, and prevent fair taxation of dominant digital players.
3. On intellectual property, India should avoid TRIPS-plus-type commitments that could weaken the generics ecosystem and reduce access to medicines.
4. Preserve strategic autonomy: Say no to anti-China or decoupling riders. Keep freedom to choose partners and design supply chains.
5. Calibrated market access: India should seek a credible rollback of the US tariffs from 50% toward the mid-teens, with clear timelines. If needed, limited and review-based tariff-rate quotas can be considered, while phasing any Indian industrial tariff changes with safeguards and periodic impact checks.
6. Diversify markets and stay ready to pause: India should expand exports to other markets even as it seeks relief in the US market. If the final text tilts against India’s long-term interests, India should pause or walk away. In such a case, no deal is better than an unfair one.

USA’s approach

1. Front-load tariff relief: The United States should provide predictable and early tariff reductions so that Indian exporters can recover momentum and trade flows can stabilise.
2. Respect India’s policy space: Avoid blanket digital clauses; accept flexible, best-endeavour wording on data, taxation, and regulation.
3. Sensitive agriculture design: Market access in agriculture should be narrow and time-bound so that it does not undercut small farmers or threaten food security. Tariff-rate quotas can be used carefully with clear reviews.
4. Keep supply chains open, not coercive: Do not add third-country riders. Let commercial purchases follow viability, not act as preconditions.

Conclusion

India should pursue a narrow, phased, reviewable deal that cuts tariffs now, protects agriculture and fishers, and keeps digital and IP space flexible. It should refuse anti-China riders and purchase linkages, diversify markets, and, if terms are skewed, pause or exit—echoing Chanakya’s caution on unfair treaties: no deal is better than an unfair one.

Question for practice:

Discuss the key challenges in the ongoing India–USA trade negotiations and outline a balanced way forward for both sides.

Source: Indian Express