Context:
India is actively negotiating an early tranche of the proposed Bilateral Trade Agreement (BTA) with the United States to protect key export sectors from punitive tariffs. This move is driven by a scheduled 26% reciprocal tariff hike on July 9, 2025, and the need to restore competitiveness for Indian goods affected by previous US trade actions.
Key Objectives of India’s Proposal
- Tariff Reversal Commitment: India seeks a binding US commitment to revert to pre-April 2 tariff levels on key labour-intensive products.
- Affected Product Categories:
- Apparel
- Leather
- Footwear
- Gems and jewellery
- These goods were subjected to an additional 10% tariff under former US President Donald Trump’s administration, raising effective duties from low single digits to double digits.
India’s Strategic Proposal
- Since the US administration currently lacks Congressional mandate to implement tariff cuts, India is proposing a “post-dated cheque” clause:
- The BTA should include a paragraph stating that once Congressional authorisation is granted, the US will reduce tariffs to zero on labour-intensive goods, subject to future negotiations.
- This will help lock in intent and provide policy predictability for exporters.
Urgency of an Early Tranche
- A 26% reciprocal tariff by India is scheduled to come into effect on July 9, 2025, which would further escalate trade costs.
- India is pushing for an early phase of the BTA to be finalised before this date to prevent tariff retaliation and maintain trade momentum.
Challenges and US Position
- The US has clarified that it cannot immediately cut tariffs due to the lack of Congressional approval.
- However, ongoing negotiations aim to build consensus around a future commitment, conditional on Congressional support.
Strategic and Economic Significance
- Restoring pre-2018 tariff regimes would reinforce bilateral trust and address India’s trade imbalance with the US.
- It would also contribute to inclusive and sustainable economic growth by supporting labour-intensive, export-oriented industries in India.
