India and US Take First Major Step Toward $500 Billion Trade Target

India and the United States have finalized the terms of reference for the first phase of their bilateral trade agreement, according to a report by Reuters citing an Indian trade official.

Prime Minister Narendra Modi and US President Donald Trump (Photo: Reuters)

Earlier this year, in February, both countries agreed to cooperate on the initial stage of the trade pact, with plans to complete it by the end of this year. The broader objective is to increase bilateral trade to $500 billion by 2030.

This development comes amid rising trade tensions between the two nations, particularly after the US imposed a 26% reciprocal tariff on Indian goods earlier this month. However, US President Donald Trump has since declared a 90-day freeze on tariff increases for major trading partners, including India.

In response, India has recently reformed its tariff policies, lowering import duties on approximately 8,500 industrial products, including key American goods like bourbon whiskey and Harley-Davidson motorcycles.

Phase One Deal Marks Commitment to Achieving $500 Billion Trade Goal

The bilateral trade agreement is a key component of "Mission 500," an ambitious initiative aimed at more than doubling current trade volumes and establishing India as a crucial partner in global supply chains, particularly as US companies look to reduce reliance on China. The deal is expected to span various sectors, including energy, critical minerals, technology, and manufacturing, with India willing to explore zero-duty imports from the US in certain industries through its Production-Linked Incentive (PLI) schemes.

Trump's Tariff Strategy Intensifies Urgency for India-US Trade Reset

On April 2, known as "Liberation Day," President Trump unveiled reciprocal tariffs, signaling a notable shift towards stronger US trade protectionism. He issued an executive order imposing a 10 percent base tariff on all imports, effective from April 5, citing persistent trade imbalances and the necessity to protect US domestic industries.

While the 10 percent tariff applied to all imports, higher duties were specifically targeted at countries with significant trade surpluses with the US, with China being the primary focus.

US–China Trade War Intensifies as India Cuts Import Duties

This action intensified the US–China trade conflict, with tariffs on Chinese goods initially increasing to 54% and later rising to 145%. In retaliation, China hiked tariffs on US products to 125% and introduced further export restrictions, especially on critical rare earth elements.

In contrast, India has sought to reduce tensions by cutting duties on thousands of items and expressing a willingness to cooperate with Washington on trade.

(This Article was originally published by Business Standard)