India and the United States are natural allies. The recent phase in the bilateral relationship of the two countries was bound to be momentary only. US President Donald Trump did not make any exceptions while, what he believed, “safeguarding” the economic interests of his country. He made no distinction and difference between allies, whether it was Canada, NATO or India. He imposed tariffs on everyone, uniformly. But gradually, he seems to have started realising that the US cannot afford to survive in isolation, no matter how strong and powerful it may be.
It is in this context that the Indo-US trade deal took place eventually. The US has agreed to an 18 per cent tariff, bringing it down from an “exorbitant and extortionist” rate of 50 per cent. India, according to Trump, has also agreed to a “zero per cent” tariff on US imports. That, on the face of it, may seem to be quite unfair and immensely imbalanced. However, Indian exports to the US are double than the imports from that country. Moreover, India mainly imports the stuff, which is important and does not have alternative suppliers. The deal is pragmatic.
The Indo-US deal has as much strategic importance as economic and financial. The 18 per cent figure is significant. It is one per cent less than the tariff the US is charging on imports from Pakistan. One per cent may not sound to be a very significant figure, but in comparative terms, when Pakistan, particularly its army chief Asim Munir was considered to have grown “very close” to Trump, this figure conveys a message. It was not just the tariffs that concerned India, it was also Trump’s gestures towards Pakistan, like hosting Munir for lunch in the White House, which did not convey pleasant diplomatic signals across South Asia.
The deal was announced by Trump on his ‘Truth Social’ platform saying, “it was an Honor to speak with Prime Minister Modi, of India, this morning. He is one of my greatest friends and, a Powerful and Respected Leader of his Country. Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25 per cent to 18 per cent. The Prime Minister also committed to ‘BUY AMERICAN,’ at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products. He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela. Prime Minister Modi and I are two people that GET THINGS DONE, something that cannot be said for most. Our amazing relationship with India will be even stronger going forward.”
Prime Minister Modi responded in his characteristic measured manner, while thanking Trump. He said, “wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement. When two large economies and the world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation. President Trump’s leadership is vital for global peace, stability, and prosperity. India fully supports his efforts for peace. I look forward to working closely with him to take our partnership to unprecedented heights”.
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The trade deal has come immediately in the aftermath of India’s Free Trade Agreement with the European Union that was preceded by similar trade deals with the United Kingdom, New Zealand and Oman. Like other countries, India explored alternate options and managed to execute these successfully. The FTA with the EU might not have happened had the US not imposed punitive tariffs. The FTA with the EU was pending for decades.
There were many more factors for the US to strike a deal with India. Besides, the massive and the largest consumer market of 1.4 billion people, which no country can afford to ignore, the US has already started feeling isolated. Canada and the European Union have also started looking at alternate markets. Canadian Prime Minister Mark Carney is likely to visit India next month where he may sign similar deals with the country.
The immediate impact of the Indo-US trade deal was felt with the stock market showing massive increase. The rupee also gained about one per cent against the US dollar. As the exports to the US, which had come down substantially due to heavy tariffs, will resume to their pre-tariff normal. It will help in resuming the domestic production that will have a positive impact on the economy.
Strategically, the deal will further add to and consolidate Prime Minister Modi’s position and goodwill across the country. Trump’s punitive tariffs were a serious personal setback to him since he had gone out of the way in supporting him (Trump) in his earlier election. Besides, Trump’s out of way overtures to Pakistan and its army chief were quite disappointing for the Indo-US diplomacy, which had evolved into a strong and dependable relationship over two decades.
Prime Minister Modi did not succumb to any pressure and stood his ground firm against a lot of domestic criticism. It was indeed one of the most trying and testing phases in his tenure as the Prime Minister, when he had to deal with someone like Trump. He did not speak much about it despite repeated provocations from the Opposition to the extent of accusing him of being weak and surrendering to Trump. Eventually, he pulled up a strategic and diplomatic success with patience and perseverance. This was obvious from the tone of Trump's message on his Truth Social platform, where he emphasised his friendship with Modi, describing him as "one of the greatest friends" and also "powerful and strong leader" of his country. Rightly so.
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