India-US trade talks back on track after tariff showdown

New Delhi: The US imposed steep tariffs on Indian exports, initially a 25% reciprocal tariff and then an additional 25% penalty for India continuing to purchase Russian oil, taking total US tariffs on many Indian goods to 50%.

These measures led to tangible export losses for India. For example, exports to the US dropped from USD 8.01 billion in July to USD 6.86 billion in August. Diplomatically and economically, relations had become strained. India called the tariffs “unfair” and “unjustified.” The US has criticised India’s high tariffs (and non-tariff barriers) and its continued oil trade with Russia.

So, the stage is: damage already done, pressure building on both sides, and a strong incentive to reset things.

Key issues in this round

Here are the main sticking points and what both sides are likely pushing for:

The upcoming India–US trade talks are being shaped by a set of thorny issues where both sides have distinctly different priorities.

At the top of the agenda are the tariffs and penalty levies. India’s negotiators are expected to push hard for a rollback or at least a mitigation of the steep 50% tariffs the US has imposed.

New Delhi argues that these duties are not only punitive but also unfairly linked to India’s decision to purchase oil from Russia, which it considers a matter of sovereign energy security.

On the other hand, Washington is likely to tie any tariff relief to assurances that India will scale back its reliance on Russian crude.

The US will also demand that India dismantle barriers that have reduced access for American exporters, who have lost ground in one of their most important markets.

The agriculture and dairy sectors will be another major flashpoint. For India, these areas are politically and socially sensitive: millions of small farmers depend on agriculture, while dairy has deep cultural and dietary significance. Opening up these markets could trigger domestic backlash, particularly over genetically modified crops and food safety standards.

The US, however, sees expanded market access in these very sectors as a non-negotiable part of any reciprocal trade deal. Washington’s agricultural lobby will press for the entry of American dairy products, corn, and GM foods into the Indian market.

Attention will also turn to non-tariff barriers and regulatory issues. India will seek to preserve its regulatory autonomy, especially in setting health, safety, and environmental norms, while also protecting micro, small, and medium enterprises (MSMEs) that could be undercut by foreign competition.

The US, by contrast, is likely to argue for greater transparency and predictability in India’s regulatory system, less bureaucratic red tape, and stronger protections for intellectual property. American businesses have long complained that opaque rules and sudden policy shifts hinder their operations in India.

Finally, there is the question of timing and the shape of a deal. India may prefer a cautious, phased approach that secures short-term relief for exporters while avoiding sweeping concessions that could harm vulnerable sectors.

By contrast, the US side is expected to press for quicker deliverables, concrete, visible concessions that can be showcased domestically. With New Delhi already signalling that a “first tranche” of an agreement could be possible by November, Washington will likely push to lock in early commitments as proof of progress.

What's different this time, or signs of possible progress

• Both sides have a softened tone. Positive signals from leadership: PM Modi and President Trump have had friendly, constructive exchanges.
• India is in a more urgent position due to the export losses and the pressure on exporters. There’s also internal pressure to find alternate markets or support exporters.
• US seems motivated to reset some trade relationships, possibly to reduce geopolitical risk, manage foreign policy implications (Russia, global oil supply) and perhaps to achieve domestic political wins by showing action.
• These talks are more of a “precursor” or re-opening, not necessarily the formal “sixth round” of full negotiation. So expectations should be calibrated.

Risks, unresolved gaps

• India is unlikely to fully open sensitive sectors (like dairy, GM agriculture) without significant compensation or phased safeguards. That may be a deal breaker.
• The penalty tariffs tied to Russian oil are also deeply political and probably not easy for India to change without US demands over strategic alignment. This is potentially a major source of friction.
• Any agreement will need to manage domestic political optics in both countries. US producers may complain if India doesn’t open up enough; Indian farmers/dairy producers may complain if markets are flooded.
• There’s also timing risk: exporters already losing business may find that relief is too slow, so even if a deal is signed, some damage might be irreversible.
• Trust has been dented: both sides will need to manage media, domestic pressures, and ensure consistency. Any mixed messages could derail the momentum.

Possible outcomes and what to watch

Here are what might happen, and what indicators would point toward success (or failure):

Best-case/mid-case outcomes:

• Some rollback or softening of the punitive tariffs by the US, perhaps linked to Indian commitments about diversifying oil sources or transparently reducing purchases from Russia.
• India agrees to modest openings in agriculture/dairy, with phased implementation or protections.
• Agreement on non-tariff/regulatory reforms: easing customs, addressing certain product standards or certification delays, etc.
• A “first-tranche” agreement by November (as India has suggested), creating win-win optics.

Less likely or challenging outcomes:

• Full rollback of all tariffs instantly, that seems politically and strategically difficult for the US.
• India's sweeping adoption of GM agriculture, or the removal of protection in dairy, has occurred without strong safeguards.
• A large, comprehensive trade deal covering all sectors in one go, the issues are too sensitive for that.

What to watch for today or soon:

• The wording of statements from both negotiators (Agarwal from India, Lynch from the US) — how strongly they talk about punitive vs justified measures.
• Whether the US indicates willingness to ease the “oil purchase” penalty if India shows movement.
• Any Indian concessions, especially in agriculture/dairy, even if only commitments to study or pilots.
• Declaration of timelines: if both agree on November or a phased schedule, that would signal serious intent.
• Support or relief measures from the Indian government for exporters hit by the tariffs — whether financial, regulatory, or via facilitating alternate markets.

Broader implications

For India: Success could reduce export losses, restore business confidence, help exporters regain footing, and potentially lead to greater foreign investment or cooperation. But missteps could aggravate losses or force India into unbalanced commitments.

For US: There is pressure to defend domestic producers, but also to reduce international friction, especially given the global context (Russia, energy, supply chains). A deal could help politically.

Geopolitically: The talks come in a period of global realignment (Russia-Ukraine war, supply chain recalibrations, India’s balancing act). Outcomes here could influence perceptions of India’s autonomy in foreign policy and how robust US trade is.