India-US trade talks: Goyal may skip ‘tit-for-tat’ threats for now

“India may have more clarity on what the US has in mind in terms of reciprocal tariffs and a bilateral trade agreement once Minister Goyal meets with top trade officials in Washington DC. He is not likely to warn the US of immediate retaliation as attempts would be made to resolve issues through the proposed bilateral trade agreement,” a person tracking the matter told businessline.

Countries like Canada and the EU have already threatened the US with counter measures in response to Washington’s tariff announcements.

Goyal may, however, mention that while India had imposed retaliatory tariffs on 28 products when Trump put 25 per cent tariffs on steel and 10 per cent on aluminium in 2018 during his first term in office, it revoked them on key items in 2023. The rollback happened for key US exports, including almonds, apples, walnuts and lentils, after the US agreed to partly lift the duty restrictions.

“The idea is to build a strong case for waivers and exemptions,” the official said.

The steel and Aluminium import tariffs are to be implemented from March 12, when the details of all items covered may also be specified. Next month, the US has planned reciprocal tariffs on other imports from countries with which it suffers a trade deficit, including India.

Trump had been complaining about India’s “very high” import tariffs since his election campaign last year and warning of reciprocal tariffs.

India’s simple average tariff rate is 17 per cent, compared to the US’ 3.3 per cent, per WTO numbers.

While Trump agreed to work on a bilateral trade agreement with India to benefit both sides during Prime Minister Narendra Modi’s recent visit to the US, the contours of the pact are not clear.

“There is no clarity even on whether the bilateral trade agreement will be on an MFN (most favoured nation) basis or a non-MFN basis,” the source said.

If the tariff cuts were to be offered on an MFN basis, it would need to be extended to all countries, resulting in stiff competition for the Indian industry, the source noted.

Before Modi’s recent visit to the US, India reduced MFN tariffs on a few products of interest to the US, including motorbikes and bourbon whisky. New Delhi is now reportedly considering more duty cuts on items such as medical devices, chemicals and electronics.

Moreover, it is ready to consider buying more oil and defence items from the US to close the trade gap of over $35 billion annually. If the US imposes reciprocal tariffs, India could retaliate by raising tariffs on US goods, taxing US digital firms, or issuing compulsory licenses for patented drugs, according to Ajay Srivastava from research body GTRI.

“However, such countermeasures would provoke further US action, starting a race to the bottom, escalating into a trade war that could significantly hurt India. Given the risk of prolonged economic damage, the government may consider all aspects before taking action,” he said