Tariff issues between the United States (US) and India have been one of the leading factors governing bilateral and economic diplomacy, along with broader international relations. As two of the world's largest democracies and major economies, the US and India share strategic interests in security, technology, and global governance. Despite growing cooperation, however, tariff disputes reveal the tensions between national economic priorities and the ideals of free trade.
Background of US–India Trade Relations
Since India’s economic liberalization in 1991, trade has steadily grown between the two countries. By 2022-23, bilateral trade in goods and services crossed USD 190 billion, making the US India’s largest trading partner. India’s major exports include pharmaceuticals, textiles, gems and jewellery, engineering goods, and IT services, while the US major exports include aircraft, defence equipment, agricultural products, crude oil, and high-tech technology.
Despite this growth, trade relations have not been devoid of dispute. The US has time and again criticized India for high import tariffs, red tape, and limited market access. India, however, counters that tariffs are inevitable to protect small farmers, indigenous manufacturing, and jobs in a developing economy.
India has a diverse economic structure with high rates of growth in the areas of information technology, pharmaceuticals, textiles, agricultural products, and manufacturing industries. India has a vast domestic market, a young labour force, and a surge in industrial production capacity. Still, India is one of the developing nations with significant socio-economic challenges such as the reduction of poverty, creation of employment opportunities, and the protection of small-scale industries and farmers.
To overcome this problem, the Indian government is employing a trade policy that is cautiously framed. A key aspect of the trade policies is the rate at which the Indian government levies import duty to protect Indian producers from cheap imports of products ranging from agriculture to dairy products, steel, electronics, and manufacturing units. Programs like Make India and Atmanirbhar have also been initiated to increase self-sufficiency.
Key Tariff Disputes Between India and the US
Despite strong strategic and diplomatic relationships, issues arising due to tariff-related problems remain an area of friction between India and the US. However, there are several challenges arising due to economic priorities between the two nations. The US emphasizes free trade with low tariffs, while India focuses on internal protection and inclusive growth.
Withdrawal of GSP benefits (2019)
In 2019 the US removed benefits granted to India under the Generalized System of Preferences. GSP offered duty-free access to the US market for some of India's exports. The US cited that the Indian government failed to offer “equitable and reasonable” access to its market, particularly in medical and agriculture products.
Hence, Indian exports worth $5.6 billion ended up losing their preferential access to the market. Products like auto parts, chemicals, and engineering goods now became costlier for consumers in the US market. India chose to hit back by imposing counter-measures against 28 US products, including almonds, apples, walnuts, and pulses, which were politically sensitive for farming states like California in the US.
Steel and Aluminium Tariffs
The US had, in 2018, levied a 25% tax on steel and a 10% tax on aluminium, citing national security, as per the Section 232 provision of trade law.
Agricultural Tariffs
One of the most sensitive sectors has been that of agriculture. India imposes high tariffs on dairy, rice, wheat, and poultry items in order to protect millions of small farmers in the country. The US, with its highly subsidized and export-driven agricultural sector, has sought lower tariffs in India.
An example of these trade barriers faced by American dairy products entering India is due to concerns about cattle feed, stemming from cultural and religious influences pertaining to cattle rearing. These types of trade barriers are often problematic obstacles to trade negotiations.
The challenge, therefore, is in balancing economic nationalism with global integration. While tariffs have helped India protect its development goals, they also run the risk of heightening trade frictions with retaliatory responses. These challenges are susceptible to continuous dialogue, compromise, and alignment of trade policy with long-term strategic cooperation.
Economic Data and Impact
Tariff Levels
The average rate of applied tariffs in India is traditionally higher compared to the US. The average Indian tariffs on industrial products are usually between 10-15%, whereas in the US, the average tariff rate is less than 4%.
Trade Balance
India maintains a trade surplus with the US, which amounts to around 30-35 billion US dollars in the latest years. This trade surplus is an issue of concern for the US.
Consumer Impact
Tariffs directly raise the costs of goods for consumers. For example, higher Indian tariffs on electronics and information and communication technology (ICT) products raise costs for Indian consumers. From a more international relations perspective, these numbers become translated into economic bargaining power and negotiation strategies where the US leverages its large market size against the growth potential and strategic importance of India in Asia.
Tariffs and India’s Policy Shift
India's recent emphasis on programs like Make in India and Atmanirbhar Bharat (self-reliant India) has driven tariff policy. Higher tariffs on electronics, solar panels, and consumer goods are intended to motivate local manufacturing. For India, this is development policy; for the US, this is protectionism.
Higher tariffs on imported solar equipment hurt US firms initially, for instance, but over time India shifted to importing more from alternative suppliers as well reducing its dependence on US companies and diversifying its sources of imports.
Conclusion
Tariffs between the United States and India demonstrate the complex interplay between economics and international relations. While tariffs are instituted to safeguard domestic interests, they often produce diplomatic tensions and economic inefficiencies. Real-life disputes over steel, agriculture, and preferential access reveal how trade policy affects farmers, industries, and consumers in both countries.
At the same time, the US–India case also illustrates that tariff conflicts do not necessarily throw strategic partnerships off kilter. Tariff conflicts become part of a continuous negotiation process formed by power, development needs, and global politics.