The Tariff Roadblock: 25% Oil-Linked Duties
One of the most significant obstacles to a comprehensive trade agreement is the imposition of 25% tariffs on oil-linked imports. Washington’s insistence on retaining these tariffs has created friction with New Delhi, which views such measures as damaging to its energy security and overall trade balance.
India, being a large importer of crude oil and petroleum products, considers affordable access to energy resources vital for sustaining its economic growth. The tariff barriers not only increase costs but also affect downstream industries and consumer prices, creating broader macroeconomic challenges.
The Broader Trade Landscape Between India and the US
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Bilateral Trade Value: Over $190 billion in goods and services annually, making the US India’s largest trading partner.
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Key US Exports to India: Crude oil, defense equipment, aircraft, medical devices, and agricultural products.
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Key Indian Exports to the US: Pharmaceuticals, IT services, textiles, precious stones, and automotive parts.
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Growth Drivers: Expanding technology collaboration, increasing investments in renewable energy, and rising demand for defense cooperation.
Despite the strong numbers, tariff disputes—ranging from steel and aluminum to agricultural commodities—continue to delay progress toward a long-term, comprehensive trade pact.
Strategic Implications Beyond Trade
While tariffs form the immediate roadblock, the broader implications extend to geopolitics and security cooperation. Both nations are members of the Quad alliance, working together on Indo-Pacific security, technology sharing, and climate change initiatives. Trade friction, however, risks undermining trust and slowing momentum in these areas.
Areas of Alignment
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Defense and Security Cooperation: Multi-billion-dollar defense deals and joint military exercises.
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Technology and Digital Trade: Expansion of data security, 5G, and AI collaboration.
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Climate and Renewable Energy: Commitments to green hydrogen, solar power, and carbon reduction.
Areas of Conflict
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Tariff-related disputes (oil, agriculture, and steel).
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Market access disagreements in pharmaceuticals and digital trade.
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US concerns over intellectual property rights and digital taxation.
Potential Scenarios for a Trade Deal
The path toward a trade agreement depends on negotiations around tariff reductions and reciprocal market access. Both countries have a vested interest in achieving a balanced deal, as it would boost investor confidence and open new avenues of cooperation.