New tariffs complicate India-U.S. trade negotiations

The U.S.-India Bilateral Trade Agreement (BTA) is ensnared in a complex web of tariffs imposed by U.S. President Donald Trump in 2025 and 2026. The tariffs, intended to protect American industries, have raised significant concerns within Indian policy circles, particularly in light of India’s inclusion in the U.S. Commerce Department’s Special 301 investigations of forced labour, excess capacity and inadequate intellectual property protection.

Compounding these challenges is the Trump administration’s plans to endorse the Russian Sanctions Bill which empowers Washington to impose tariffs of up to 100% on Russia’s various trading partners, including China and India. This potential move could significantly alter the landscape of bilateral trade dynamics, particularly for India, which is looking to strengthen its economic ties with the U.S.

Just five months ago, in February 2026, President Trump and Indian Prime Minister Narendra Modi, in a high-level phone call, announced what was described by Washington insiders as a “historic” trade deal focused on reciprocal trade benefits. It was in this phone call that both leaders agreed for the reciprocal tariffs to be brought down to 18% from 25% and for there being no tariffs on India for procuring Russian oil. In return, India agreed to either eliminate or substantially lower tariffs on a wide range of U.S. industrial goods, creating a more favourable trading environment for both nations.

Eventually, both sides announced the finalisation of a ‘Framework Agreement’ that was to lead up to an ‘Interim Agreement’. However, since then, a series of events have become stumbling blocks, pushing the trade agreement further down the road.

By the end of February, discussions between India and the U.S. were put on hold as a result of a pivotal ruling from the U.S. Supreme Court regarding tariffs. The court’s decision raised serious doubts about the legal basis for Trump’s tariff initiatives, specifically questioning the authority granted under the International Emergency Economic Powers Act (IEEPA). This sudden uncertainty effectively stalled progress towards finalising the trade agreement and left both nations reassessing their next steps in the negotiation process.

In late June, U.S. Trade Representative Jamieson Greer visited New Delhi and both sides said they had made “substantial progress” but declined to set a deadline. While it seemed that Greer’s visit was to push the trade talks ahead, there came another shock from the U.S. by way of investigations under Section 301 of the Trade Act of 1974, which has the potential to add another 12.5% tariff on Indian products.

Not surprisingly, India wants legally binding assurances that the U.S. won’t introduce future actions that contradict the agreement — essentially predictability that today’s concessions won’t be undermined by tomorrow’s investigations.

There is an additional burden: the U.S. Senate’s passage of the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 which empowers the U.S. President to levy up to 100% tariffs on goods from the top five importers of Russian energy, including India and China. The bill is awaiting House review and presidential signature, but it most certainly threatens India’s discounted crude imports from Russia and broad export market including to Europe. However, the tariffs are not strictly automatic upon passage; the legislation leaves room for presidential waivers or exemptions if nations scale back energy reliance. The bill will also compel India to hedge its long-standing defence and economic ties with Russia against its vital economic partnership with the U.S.

Mark Linscott, former Assistant U.S. Trade Representative, summed it up in an August 18 paper for the Atlantic Council, noted, “While U.S. and Indian negotiating teams have continued working to finalise the interim agreement, some momentum appears to have been lost as they await the results of pending investigations and the possibility of additional Section 301 cases to come. For its part, India has been clear that it is ready to conclude the interim agreement, so long as it can be assured that the tariffs that result are preferential to those imposed on other major competitor nations.”

“To date, unforeseen developments have repeatedly prevented the United States and India from crossing the finish line on a trade agreement,” Linscott adds.

In the current chapter of the BTA negotiations, the U.S. is pushing hard for market access across India on corn, soybeans, dairy, GM crops, pulses/grains, and dry fruits. India is not agreeable: roughly 40%–50% of its population is tied to farming, and past farmer protests (which forced New Delhi to repeal its 2021 farm laws) have not been forgotten, still casting a political shadow.

High-level sources say dairy and GM crops for human consumption are effectively “off the table,” with the U.S. likely settling for limited access on pulses and dry fruits.

India’s Commerce Minister Piyush Goyal has gone on the record to state that the deal with U.S. will prove to be fruitful only when India gets a competitive advantage over its rivals like China, Malaysia, Vietnam and Bangladesh among others. He said this at an event in London in June 2026 adding, “We obviously must have some reason to be able to enter into force that agreement which we have already agreed upon.”

Keeping Trump’s uncertainty on trade tariffs in mind, India is understood to have demanded a sunset clause under the BTA during Greer’s visit. Under this clause, the BTA will have a built-in expiration clause that will be mutually agreed upon, unless both parties renew the agreement. The U.S.-EU trade deal has such a clause. India has sought a similar provision under the BTA.

The BTA in-suspension will only find meaningful solution if and when PM Modi meets President Trump in person. That could take place in September during the UNGA meeting in New York. It will be wise for India to carefully monitor the political pressures the U.S. President is facing domestically and develop a work-around it.

Nayanima Basu is the Adjunct Fellow at Gateway House and an author.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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References:

Manak, Inu, and Helena Kopans-Johnson. “Trade Agreements, Explained.” Council on Foreign Relations, August 12, 2025. https://www.cfr.org/articles/trade-agreements-explained.

Linscott, Mark. “What It Will Take for the US and India to Conclude a Trade Agreement.” Dispatches (blog). Atlantic Council, August 18, 2026. https://www.atlanticcouncil.org/dispatches/what-it-will-take-for-the-us-and-india-to-conclude-a-trade-agreement/.

Ministry of Commerce and Industry. “Final US Section 301 Measures on Forced Labour: India Placed in Lower Tariff Tier at 10%.” Press release. Press Information Bureau, Government of India, July 25, 2026. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2289348&reg=3&lang=1.