Protecting Interests: Decoding India's Stance In US Trade Negotiations

In September 2025, Prime Minister Narendra Modi used the phrase "unlock the limitless potential of the India-US partnership" in a social media post on X, referencing renewed trade talks with the US. This statement followed months of heightened trade tensions between the two countries. Modi's post was in reply to US President Donald Trump's announcement that the US and India were resuming trade negotiations. In his message, Modi referred to India and the US as "close friends and natural partners". He expressed confidence that the negotiations would succeed and noted that teams from both sides were working to conclude discussions "at the earliest". 

Trump's tariffs have significantly impacted India by reducing its exports to the US, damaging labour-intensive sectors, and straining diplomatic relations. The US imposed a 50% tariff on many Indian goods in August 2025, with half of the levy serving as a penalty for India's continued purchase of Russian oil.

According to the Global Trade Research Initiative, Indian goods exports to the US plunged by 37.5% between May and September 2025. The trade drop erased over $3.3 billion in monthly trade, with September being the first full month under the 50% tariff.

Labour-intensive industries that rely heavily on the US market have been hit hardest. These include textiles, gems and jewellery, leather goods, and engineering products. Some Indian exporters have become priced out of the US market, with firms either closing, relocating to lower-tariff countries, or redirecting goods to different markets.

In the short term, the tariffs have contributed to volatility in the Indian stock market and weakened the Indian rupee against the US dollar. In response, India has not retaliated with its own tariffs but is focusing on diplomatic engagement, market diversification to other regions, and supporting affected sectors. 

The most significant impact has been on labour-heavy sectors, which have suffered the heaviest losses. Economists warn that the tariffs could reduce India's GDP growth by 0.5% to 0.8%. While India's overall economic performance has remained resilient due to market diversification, the informal sector, which employs millions, is particularly vulnerable. The informal sector in Indian industry is a major component of the economy, characterized by a vast workforce of over 90% of all workers who lack social security and legal protections. 

The tariffs, particularly the penalty portion related to Russian oil, have strained US-India relations. While bilateral trade talks are ongoing, the Indian government has firmly rejected Trump's claims that Modi has agreed to stop buying Russian oil. India has reportedly shown a willingness to increase US energy purchases, but a complete halt of Russian imports is unlikely. 

Trump's tariffs on India have also led to higher prices for American consumers, squeezed US small businesses, and prompted US companies to shift their supply chains. Indian goods like textiles, jewellery, spices, and seafood are now significantly more expensive. Businesses have absorbed some costs, but much of it is being passed on to consumers.

The seafood industry is particularly affected, as India is a leading supplier of shrimp to the US. Higher apparel costs are also impacting clothing prices. Many US businesses, including hundreds of Indian-American businesses that rely on Indian imports, are struggling with the higher costs. To avoid the higher costs, some American businesses are shifting their sourcing to other countries like Vietnam, Bangladesh, and Ecuador.

While both sides have continued negotiations and expressed a desire to boost long-term trade, the diplomatic crisis has heightened tensions. The standoff has been described as one of the most challenging periods for the relationship in two decades. It has led to diplomatic friction and concern that the trust built over generations could be damaged. In the face of US tariffs, India is proactively diversifying its export markets to reduce its dependence on the US, with some success in other regions. India's strategy of diversifying its export markets is helping to mitigate the impact of the US tariffs, showing some resilience in its overall export performance.

Despite the tensions, negotiations continue with key items on the agenda. Indian and American negotiators continue discussions on market access for agricultural goods and other products. India's commerce minister has reiterated the need to protect the interests of Indian farmers and small-to-medium enterprises. India has reportedly offered to increase its purchases of US oil and gas to narrow the trade deficit, while defence cooperation is also a topic of negotiation. 

India is unlikely to agree to a "wholesale opening" of its agricultural sector due to the potential political and economic impact on its farmers. India can potentially offer concessions in the agricultural sector to the US by allowing limited imports of genetically modified animal feed and increasing market access to specific products such as certain fruits like apples, dry fruits and edible oils. However, concessions on major commodities like corn, soybeans, wheat, and dairy remain a sticking point due to domestic concerns and existing import restrictions on GM crops. India has shown willingness to allow the import of GM corn for use as animal feed, but not for human consumption. 

The most immediate path to de-escalation involves resolving the Russian oil issue. Moreover, instead of a comprehensive free trade agreement, a more realistic outcome is a phased deal. A potential first tranche of the agreement could be finalised towards the end of 2025, though talks are not bound by a strict deadline.  

Summing up, while there are positive reports of narrowing differences and constructive talks, the new tariffs and underlying geopolitical issues create a challenging environment for a swift resolution. The long-term outlook for India-US trade relations is complex. While geopolitical and economic logic supports a stronger partnership, the imposition of tariffs and diplomatic friction over strategic differences poses a significant risk to future progress. The outcome of the trade talks will decide whether cooperation or protectionism defines the relationship moving forward. 

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