An emboldened India holds out for better terms in US trade talks
India has paused a bilateral trade agreement with the United States rather than accept terms it considers one-sided, seeking reciprocal tariff concessions rather than a quick deal.
The Government's negotiating position has been that India will not accept lower tariff treatment for itself than what rival exporting countries may receive from the U.S., seeking a clear competitive advantage in the American market.
India's improved negotiating confidence is linked to newly operational and forthcoming trade agreements with other partners, reducing its dependence on a U.S. deal.
A temporary U.S. tariff of 10% applied broadly across trading partners is set to expire around 24 July 2026, adding a timeline pressure to the negotiations without forcing India into premature concessions.
Free Trade Agreements, CETA and Diversification Strategy
A Free Trade Agreement (FTA) is a treaty between two or more countries to reduce or eliminate tariffs and other trade barriers on goods (and often services) traded between them. India has increasingly used newly concluded FTAs — rather than reliance on any single partner — as leverage in trade negotiations, since alternative export markets reduce the cost of not signing a deal with any one country.
Key Details
- The India-UK Comprehensive Economic and Trade Agreement (CETA), signed in July 2025, enters into force on 15 July 2026; the UK will eliminate duties on 99% of Indian tariff lines immediately, including reductions on textiles, leather, marine products, and engineering goods.
- The India-EU Free Trade Agreement was concluded in January 2026 after roughly two decades of negotiations; it removes or reduces tariffs on more than 90% of traded goods and still requires EU Council and Parliament approval before entering into force.
- India had earlier signed the India-UAE Comprehensive Economic Partnership Agreement (CEPA) in 2022, one of India's fastest-negotiated trade pacts, seen as a template for its post-2020 FTA strategy.
The near-simultaneous coming-into-force of the UK deal and conclusion of the EU deal gives India alternative large markets for exports such as textiles, leather and marine products, reducing the urgency to accept unfavourable U.S. terms.
Reciprocal Tariffs and the "Competitive Advantage" Principle in Trade Negotiations
Reciprocal tariff measures involve one country adjusting its tariffs to match or offset another's tariff treatment, often outside a negotiated trade agreement framework. India's stated negotiating position — that it must retain a tariff advantage relative to competitor exporting nations in the U.S. market — reflects standard trade-negotiation logic: an FTA is valuable only if it improves relative market access versus competitors, not just absolute access.
Key Details
- Since April 2025, the U.S. has applied a baseline tariff (around 10%) on a broad range of trading partners as part of a "reciprocal tariff" policy; this baseline is due to expire around 24 July 2026 in the ongoing case.
- India's exports directly compete with countries such as Vietnam, Bangladesh and China in categories like textiles and electronics, making relative tariff treatment commercially decisive.
- Trade agreements are broadly categorised as FTAs (goods focus), CEPAs/CECAs (goods + services + investment), or interim/early harvest agreements (limited initial tariff cuts pending a fuller deal) — the ongoing India-U.S. talks have been described in media reports as aiming for an interim agreement first.
India's refusal to accept a deal without an assured tariff edge over rival exporters is a direct application of this "relative advantage" logic in trade diplomacy.
- India-UK CETA enters into force on 15 July 2026; the UK eliminates duties on 99% of Indian tariff lines, including cuts of up to 70% on processed foods and 21.5% on marine products.
- The India-EU FTA was concluded on 27 January 2026, cutting tariffs on over 90% of traded goods, reducing India's tariffs on EU products by an estimated €4 billion annually.
- A U.S. baseline "reciprocal" tariff of around 10% on multiple trading partners is due to expire on 24 July 2026.
- India-UAE CEPA, in force since 2022, is often cited as the template for India's recent wave of bilateral FTAs.