The United States and India, as the world’s largest and fifth-largest economies respectively, maintain a complex trade relationship characterized by both cooperation and periodic tension. Their tariff policies and trade relations have evolved significantly over the past few decades, shaped by changing economic priorities, geopolitical considerations, and domestic political pressures.
The U.S.-India trade relationship has transformed substantially since India’s economic liberalization in the early 1990s. Prior to these reforms, India maintained highly protectionist policies with tariffs exceeding 200% on many products. While India has gradually reduced tariffs since then, the U.S. has consistently criticized India’s tariff regime as more restrictive than those of comparable economies. This fundamental tension has persisted despite growing bilateral trade volume, which now exceeds $100 billion annually.
The Trump administration took several significant actions that reshaped tariff relations with India. In June 2019, the U.S. terminated India’s benefits under the Generalized System of Preferences (GSP) program, eliminating duty-free entry for approximately $5.6 billion worth of Indian exports to the U.S. This decision came after the U.S. determined that India had not provided “equitable and reasonable access” to its markets. The move represented a major shift in trade policy toward India and eliminated preferences that had facilitated Indian exports for decades.
Further complicating relations, the U.S. imposed 25% tariffs on steel and 10% on aluminum imports from various countries, including India, citing national security concerns under Section 232 of the Trade Expansion Act. India responded with retaliatory tariffs on 28 U.S. products, including almonds, apples, and certain steel products. This tit-for-tat tariff escalation created additional friction in bilateral trade relations and affected agricultural producers and metal manufacturers in both countries.
The Biden administration has pursued a somewhat different approach to trade with India, emphasizing strategic partnership alongside economic interests. However, several Trump-era policies have remained in place. The GSP program itself expired in December 2020, and while Congress has considered its renewal, India’s benefits have not been restored. Similarly, the Section 232 tariffs on steel and aluminum continue to apply to Indian exports, even as the U.S. has negotiated modifications with other partners like the EU, UK, and Japan.
The current tariff structures between the two countries reflect significant asymmetry. The U.S. maintains relatively low average tariffs (around 3.4% weighted mean) on most goods, though specific sectors such as textiles, footwear, and certain agricultural products face higher rates. Without GSP benefits, Indian exporters face an estimated additional $300 million in annual tariff costs when selling to the U.S. market.
India’s tariff structure, by contrast, features much higher rates. Its average applied most-favored-nation (MFN) tariff rate is approximately 15%, significantly higher than other major economies. Certain products face particularly steep duties, with rates exceeding 100% for items like whiskey (150%) and motorcycles with large engines (100%). India has frequently adjusted these tariffs, especially on electronic goods, medical devices, and agricultural products, often citing the need to protect domestic industries from foreign competition.
Agricultural trade represents a persistent area of friction between the two nations. The U.S. has criticized India’s high tariffs on products like almonds, apples, and pulses, while also objecting to India’s agricultural subsidies and food stockholding programs. India, meanwhile, has raised concerns about U.S. farm subsidies and has defended its policies as necessary for food security and rural livelihoods. The agricultural sector in both countries maintains significant political influence, making compromises particularly difficult.
The pharmaceutical and medical device sectors have emerged as another flashpoint. India’s price controls on medical devices and pharmaceutical products have been a point of contention, with the U.S. arguing these policies disadvantage American manufacturers. While tariffs in this sector are not extraordinarily high, they interact with regulatory policies that affect market access and profitability for multinational firms. India has defended these measures as essential for ensuring affordable healthcare for its population.
The rapid growth of digital trade has introduced new challenges to the bilateral relationship. India’s data localization requirements, restrictions on cross-border data flows, and digital services tax have all faced criticism from U.S. technology companies and trade representatives. The U.S. initiated investigations under Section 301 of the Trade Act regarding India’s 2% Digital Services Tax, which it claimed discriminated against U.S. technology companies. These digital trade issues represent a new frontier in tariff and trade policy that will likely grow in importance.
Trade tensions exist within a broader strategic relationship that has grown increasingly important to both nations. Security cooperation, particularly regarding China’s influence in the Indo-Pacific region, often provides incentives for both sides to manage trade disagreements diplomatically. Both governments have generally prevented tariff disputes from derailing cooperation in other domains, including defense, technology, and global governance.
India has pursued a policy of “self-reliance” (Atmanirbhar Bharat) in recent years, which has at times included increased tariffs to protect domestic industries. Simultaneously, India has sought to increase manufacturing exports through production-linked incentive schemes. This dual approach of protection and export promotion has complicated trade negotiations with the United States, which has consistently pushed for greater market access in India.
While the U.S. has often preferred bilateral trade negotiations, India has traditionally favored multilateral approaches through the World Trade Organization. This fundamental difference in approach has complicated efforts to resolve tariff disputes. India has also expanded its participation in regional trade arrangements, including the Regional Comprehensive Economic Partnership (RCEP) negotiations (though it ultimately withdrew) and bilateral agreements with other trading partners.
The U.S.-India trade relationship seems poised to continue its pattern of incremental progress mixed with periodic tensions. Several factors will shape future tariff policies. The shared interest in countering China’s influence may create incentives for compromise on trade issues. Rather than comprehensive trade agreements, both sides may pursue smaller, sector-specific arrangements to address particular pain points. Additionally, both countries’ interest in reducing dependence on China for critical goods could create new opportunities for trade cooperation.
Despite these challenges, the economic relationship between the United States and India appears likely to deepen. The sheer scale of India’s market, with its growing middle class of consumers, makes it increasingly important for U.S. exporters. Similarly, India’s technology sector and manufacturing capabilities offer significant opportunities for mutually beneficial trade. While tariff disputes will undoubtedly continue to arise, the fundamental economic complementarities and strategic alignment between the world’s two largest democracies suggest a trajectory of growing economic integration, albeit with periodic friction over specific trade policies.