The Unpredictable Future Of India-US Trade Relationship

Lord Palmerston, a 19th-century British statesman and former prime minister, had said, "We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow." His words are often paraphrased as "There are no permanent friends or enemies in diplomacy, only permanent interests," a statement that reflects a key aspect of the Realist School of thought in International Relations, which emphasises the role of the state, national interest, and power in world politics. 

This concept is important in diplomacy for several reasons. Countries prioritise actions that benefit their own security, prosperity, and influence in the world; alliances and rivalries can shift as national interests change in response to evolving geopolitical landscapes, technological advancements, or domestic priorities; and diplomatic decisions are often guided by practical considerations and a calculated assessment of costs and benefits rather than abstract moral principles or rigid ideologies. 

President Trump's foreign policy is demonstrably centred on what he perceives as 'US national interests,' particularly prioritising a transactional approach. Trump's policies, encapsulated in his "America First" slogan, favour bilateral agreements and actions over multilateral engagement and alliances. The evolution of his policy towards Pakistan is a good example of his transactional approach.

It may be recalled that in his first term, Trump's first tweet on Jan. 1, 2018 was about Pakistan. Trump had said, "The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!" Not surprisingly, the Pakistani establishment was livid about his remarks. The Pakistan Foreign Secretary Tehmina Janjua had summoned the US Ambassador and lodged a formal complaint.

In his first term, Trump's South Asia strategy was heavily influenced by the war in Afghanistan, focusing on counterterrorism and a conditions-based withdrawal of US troops. Trump relied on tools like the Financial Action Task Force (FATF) to pressure Pakistan on counterterrorism. While relations with Pakistan were initially strained, they improved after 2019 due to Pakistan's role in the Afghan peace process.

How is Trump's policy towards Pakistan playing out in his second term? Recent developments suggest an unprecedented warming of relations between the United States and Pakistan. On June 19 this year, Donald Trump hosted Pakistan’s army chief, Asim Munir, for lunch in an unprecedented White House meeting. He even told reporters afterwards that he was “honoured to meet Field Marshal General Asim Munir"! This was the first time in many years that a Pakistani army chief was hosted by a sitting US president at the White House, highlighting Trump's interest in building close ties with Pakistan, which has also taken all possible steps to win over US support. Earlier this week, Pakistan conferred its big military honour, 'Nishan-e-Imtiaz (Military),’ upon US Central Command chief General Michael Kurilla.

Against this background of the warming of bilateral relations, Donald Trump announced a trade deal with Pakistan. “We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves,” Trump wrote on social media, adding" “We are in the process of choosing the oil company that will lead this partnership.” In his characteristic style he said that "“maybe” Islamabad will sell oil to New Delhi “some day.” 

It is ironic that Trump has said that Pakistan and the United States will work together on developing their "massive oil reserves.” While there are potential hydrocarbon reserves, particularly offshore, the country's current proven reserves are modest. Pakistan relies heavily on oil imports to meet its domestic demand.

While President Trump has spoken about "massive oil reserves" in Pakistan, experts suggest his claims are overstated. Recent seismic surveys and geological studies have no doubt indicated potentially sizable oil and gas reserves, particularly in the Indus Basin and offshore areas. Perhaps, these findings have generated optimism about future exploration and extraction.

However, the recent discovery of potential reserves is not equivalent to 'confirmed, massive reserves.' Moreover, despite the potential, there are significant challenges to realising these reserves, including security concerns, high costs of exploration and development, and the need for substantial investment. 

It has not been specified where the exploration would take place, but most of Pakistan’s reserves are believed to be in the southwestern province of Balochistan, where an insurgency is going on. The Baloch separatists say that their province's natural resources are being exploited by the Punjabi-dominated army and central government in Islamabad. Balochistan has long been the centre of violence, mostly blamed on groups including the outlawed Balochistan Liberation Army, or BLA, which the U.S. designated a terrorist organisation in 2019.

Separatists in Balochistan have opposed the extraction of resources by Pakistani and foreign firms and have targeted Pakistani security forces and Chinese nationals working on multi-billion-dollar projects related to the China-Pakistan Economic Corridor.

In response to U.S. President Donald Trump’s recent announcement of a deal to help Pakistan develop its “massive oil reserves,” prominent Baloch human rights activist Mir Yar Baloch issued a stern warning that the oil and mineral resources "belong to Balochistan—a historically sovereign nation currently under illegal occupation by Pakistan.” He added that the Pakistani government’s claim over them is “false” and a “deliberate attempt to misappropriate Balochistan’s wealth for political and financial gain.” Mir Yar Baloch declared, "Balochistan is not for sale. We will not permit Pakistan, China, or any other foreign power to exploit our land or its resources without the explicit consent of the Baloch people. Our sovereignty is non-negotiable.” 

Oil reserves are also thought to exist in the southern part of Sindh and the northwestern Khyber Pakhtunkhwa provinces. However, an insurgency is also underway in Khyber Pakhtunkhwa, while the Sindhis are also opposed to the exploitation of the resources of their province for the benefit of the Punjabis.

There have been several attacks targeting Chinese nationals in Pakistan. These attacks, often involving bombings or armed assaults, have led to casualties and injuries among Chinese citizens working on various projects, particularly those related to the China-Pakistan Economic Corridor (CPEC). Militant groups, including the Balochistan Liberation Army (BLA), have claimed responsibility for some of these attacks. 

Thus, despite the potential reserves, there are also significant challenges to realising these reserves, including security concerns, high costs of exploration and development, and the need for substantial investment. Trump will exert pressure on US companies to do this work, but working in the oil and gas sector in Pakistan, especially in regions with ongoing conflicts, like Balochistan, will pose significant security risks for US nationals and other foreign workers. US nationals working in the conflict-prone areas like Balochistan will face heightened security risks due to the activities of separatist militant groups. 

The Pakistanis have said that this deal will enhance the growing cooperation with the US and expand the frontiers of their partnership in days to come. U.S. total goods trade with Pakistan was a measly $7.3 billion in 2024, up from about $6.9 billion in 2023. The trade agreement aims at boosting bilateral trade, expanding market access, attracting investment, and fostering cooperation in areas of mutual interest. The agreement will result in a reduction of reciprocal tariffs, especially on Pakistani exports to the United States.

The question arises: What does the US-Pak deal mean for India? By concluding this deal with Pakistan, Trump wants to send a message to India. Surely, an increased closeness between Pakistan and the US will not be in India's interests. The announcement of the deal with Pakistan came hours after Trump announced a 25% tariff on all goods coming from India, plus an additional unspecified penalty for purchases of Russian military equipment and energy. It's not unlikely that Trump's announcement is a pressure tactic to get New Delhi to agree to demands made by the US, which has, in recent days, gotten favourable trade deals with major partners like Japan, the UK, and the European Union. 

Trump posted on Truth Social, “Remember, while India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country.” Trump has spoken multiple times about the tariffs that India imposes and referred to India’s membership of the BRICS (Brazil, Russia, India, China, and South Africa) grouping, which he described as "anti-US." White House economic adviser Kevin Hassett said that "President Trump is frustrated with the progress we've made with India" and that "a 25% tariff will address and remedy the situation in a way that's good for the American people.”

Despite initial announcements during Prime Minister Narendra Modi’s visit to the United States about pursuing a bilateral trade agreement, India and the US have yet to finalise even an interim deal, although five rounds of negotiations have been held between officials from both sides. A sixth round of talks on the trade deal is scheduled to be held towards the end of August when a US delegation is expected to visit India. US Trade Representative Jamieson Greer, who had earlier said that a deal with India might be imminent, has now said that it needed to be understood that Delhi's trade policy has been "protectionist for a very long time" and has been "premised on strongly protecting their domestic market."

In a statement, the Indian government said that it has "taken note" of Trump's statement and is "studying its implications." The statement adds: "India and the US have been engaged in negotiations on concluding a fair, balanced, and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective."

India has reasons to be concerned about the 25% tariffs imposed by Trump. The US is India's largest trading partner. The US imports significantly more from India than it exports. In 2024, the total value of goods traded between the two countries reached an estimated $129.2 billion. Imports from India amounted to $87.4 billion, while exports were $41.8 billion, resulting in a trade surplus of $45.7 billion for India.

India is one of the significant sources of imports for American consumers and companies. The United States imports a variety of goods from India, including pharmaceuticals, gems and jewellery, chemicals, textiles and apparel, leather goods, metals, machinery and parts, plastics, and agricultural products like spices, tea, and rice. The United States' largest exports to India are crude oil and machinery, including agricultural and construction equipment. According to data reported by Bloomberg, India recently became the top source of smartphone imports after Apple shifted production away from China to avoid high tariffs and geopolitical conflicts. Apple CEO Tim Cook said that he expected “the majority of iPhones sold in the U.S. will have India as their country of origin” starting this quarter.

The trade relationship between the US and India is substantial and growing, with both imports and exports seeing increases in recent years. However, the 25% tariff, along with the potential penalty, could negatively impact India's export prospects. While the 25% tariff rate would be slightly lower than the 26% that Trump threatened on April 2, it is still a sharp increase from 2.4%, which is the average tariff rate applied to Indian imports in recent years. Industries such as pharmaceuticals, gems and jewellery, textiles, and automobiles are expected to be particularly affected. 

Indian government officials reportedly believe any US tariffs imposed starting August 1 are likely to be temporary, as negotiations to reach a comprehensive trade pact are still ongoing and could be concluded by the fall. However, finalising the deal could still face hurdles, as has been the case till now. Key sticking points remain, particularly about access to India’s agriculture and dairy sectors. Indian officials have maintained a firm stance, refusing to open these sectors to US exports. On the other side, the Trump Administration will continue to press India to fully open up its markets to American goods.

In conclusion, it may be pertinent to recall that Indian Prime Minister Narendra Modi and US President Donald Trump have expressed a commitment to more than doubling the bilateral trade between the two countries to $500 billion by 2030. However, this ambitious target now faces serious challenges. Trump's recent decision to impose tariffs and penalties on India indicates a significant strain on the bilateral trade relationship. The future of India-US trade relations and the viability of achieving the $500 billion target will largely depend on the outcome of these ongoing trade negotiations, as well as on how both nations navigate the complex interplay of economic and geopolitical interests. Despite widespread optimism about the future of the U.S.-India partnership, relations are considerably more fragile than they might appear. The bottom line is that the impact of Trump's second term on the U.S.-India relationship remains simply unpredictable.

Prabhu Dayal is a retired Indian Foreign Service officer from the 1976 batch, with years of experience in India's diplomatic service.

The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.