India-US Trade Deal Nearing Conclusion as Policy Uncertainty Shapes Final Negotiations

Bilateral Trade Agreement discussions enter a decisive phase, with tariff policies and trade conditions emerging as key considerations

The India-US Bilateral Trade Agreement (BTA) is approaching its final stages, following a visit by a US negotiating team to India from June 1-4. On May 30, US Ambassador Sergio Gor stated that the agreement was “99 per cent ready.”

The negotiations were formally launched on February 13, 2025. Early indications of the proposed arrangement emerged through the India-US Joint Statement issued on February 6, 2026.

According to the document, India agreed to a series of concessions. Washington indicated it would reduce its so-called reciprocal tariff on Indian exports from 25 per cent to 18 per cent. In return, India signalled willingness to consider deeper tariff reductions on US industrial and agricultural products, provide greater access for American medical devices and farm goods, facilitate cross-border data flows, accept digital trade commitments, align more closely with US economic and security priorities, and potentially commit to purchasing up to $500 billion of US goods over five years.

Changes in the US Tariff Framework

Before the agreement could be finalised, the basis of the US offer changed.

On February 20, the US Supreme Court ruled that President Trump’s reciprocal tariffs exceeded the authority granted under the International Emergency Economic Powers Act (IEEPA). The ruling invalidated the legal foundation of the reciprocal tariff framework.

As a result, the previously proposed reduction from 25 per cent to 18 per cent effectively ceased to apply.

Washington subsequently replaced the reciprocal tariff structure with a temporary 10 per cent tariff on imports from all trading partners under Section 122 of the Trade Act of 1974. The measure was introduced for five months without Congressional approval and is scheduled to expire on July 24.

Countries that had agreed to significant concessions during trade negotiations received the same tariff treatment as those without such agreements, reducing the practical value of the earlier concessions.

Trade Negotiations Face New Challenges

The shift in policy quickly affected ongoing trade discussions.

On March 15, Malaysia withdrew from its trade arrangement with Washington after determining that the expected benefits no longer justified the commitments being requested.

The United States had anticipated this possibility and, on March 11 and 12, the Office of the United States Trade Representative launched two separate Section 301 investigations covering 60 economies, including India.

One investigation focuses on alleged excess industrial capacity, while the second examines concerns linked to forced labour in global supply chains.

The excess-capacity investigation includes sectors ranging from solar modules and petrochemicals to steel, pharmaceuticals, automobiles and textiles.

The forced-labour investigation reviews whether countries have adopted import-control policies preferred by Washington. The inquiry is not based on allegations that Indian exports are produced using forced labour.

Additional Tariff Proposals Under Review

On June 3, the USTR released findings from the forced-labour investigation and proposed additional tariffs of 12.5 per cent on imports from India and 53 other economies.

The proposal is not final, and a decision is expected before July 24, when the temporary Section 122 tariff expires.

Findings from the excess-capacity investigation are also awaited.

Two Possible Outcomes

Current developments have created two potential paths for India.

Scenario One: India Signs the BTA

Under this scenario, Washington could offer India lower Section 301 tariffs, potentially set at 18 per cent, in exchange for signing the BTA under the terms discussed earlier.

However, even after the agreement is signed, further investigations could be initiated on additional issues. One example cited is the purchase of crude oil from Russia or Iran.

The US has previously initiated Section 301 investigations involving the European Union, Japan, South Korea and others after concluding trade agreements.

In return for lower Section 301 tariffs, India would also be expected to implement commitments extending beyond tariff reductions. These include regulatory concessions, digital trade obligations, closer alignment with US strategic priorities and a potential commitment to import up to $500 billion worth of US goods.

Scenario Two: India Declines to Sign

Under this option, India could choose not to proceed with the BTA and instead face whatever Section 301 tariffs Washington ultimately imposes.

Such tariffs would apply to multiple countries rather than India alone.

Supporters of this approach argue that it could allow India to avoid long-term commitments if their economic costs ultimately exceed the impact of tariff measures.

Trade Data and Policy Considerations

Available trade data suggests that tariff-related effects may remain manageable.

Despite periods of elevated US tariff barriers during FY26, India’s exports to the United States are expected to remain above the previous year's levels.

The earlier rationale for concluding a BTA largely disappeared following the Supreme Court decision of February 20, which invalidated the reciprocal tariff framework.

The original basis of the US proposal is no longer in effect. What remains are Section 301 investigations and the possibility of future tariff adjustments.

Trade agreements are generally intended to create durable commercial gains for both sides and are not designed to serve as protection against future unilateral actions.

Given the current structure of the BTA, the decision facing New Delhi is whether to delay negotiations or suspend them until US trade policy becomes more stable and predictable.