Unlocking Prosperity: Why a U.S.-India Trade Deal is Essential for Our Future

Forget what you may have heard about the U.S.-India trade relationship possibly worsening. There’s actually a great opportunity for both countries to boost trade during President Trump’s second term.

Over the past two decades, U.S.-India economic ties have grown, but they haven’t kept pace with the rest of their partnership. The U.S. has been running a trade deficit with India, which surpassed $45 billion in 2022. High trade tariffs in India have drawn criticism, with Trump labeling the country as a “king” of tariffs. Prime Minister Modi has implemented these tariffs to protect local industries and encourage foreign investment, aligning with his “Make in India” initiative.

Despite Trump’s well-known interest in tariffs, there’s reason to remain hopeful about trade negotiations between the countries. Trump enjoys striking deals and wants to strengthen the U.S. economy. His tariffs could serve as a way to open up foreign markets for American companies, potentially creating jobs and reducing the trade deficit.

Both the U.S. and India have a vested interest in increasing their economic influence in the Indo-Pacific region, especially as a counter to China’s dominance. This moment may present the right conditions for significant trade talks.

During Trump’s first term, one of us served as U.S. ambassador to India while the other was involved in trade negotiations. At that time, the U.S. expressed willingness to negotiate a broader trade agreement with India. Although there seemed to be some interest from India, concrete commitments were lacking, and the discussions ultimately stalled.

In 2019, the U.S. ended India’s benefits under the Generalized System of Preferences (GSP), a program that allowed India to export hundreds of products to the U.S. without tariffs. While both sides aimed for a “small” trade deal afterward, significant progress was not achieved, mainly due to high expectations on both sides.

Despite past challenges, an ambitious trade agreement is still possible. Trump may focus on lowering India’s trade barriers in sectors like medical devices, agriculture, and IT. In exchange, India would likely aim to enhance trade and possibly restore GSP benefits if reauthorized by Congress.

Both leaders have shown a preference for major initiatives, making this a feasible goal. Trump’s previous successes in trade agreements suggest he is willing to negotiate, while Modi’s past attempts at diplomacy also indicate he is prepared to engage in high-stakes negotiations.

While a full free trade agreement may be difficult due to domestic politics, a bilateral deal following the U.S.-Japan Trade Agreement (USJTA) model could be beneficial. This type of agreement could simplify tariff reductions and foster commerce between the two nations.

Given that the U.S. is India’s largest trading partner, there are many areas where both nations can benefit. For example, Indian companies have been essential for U.S. IT services, especially during the pandemic, highlighting the deep interdependence of the two economies.

Technological collaboration has also surged, particularly with initiatives focused on emerging technologies and defense cooperation. As both nations explore advancements in sectors like artificial intelligence and biotechnology, a trade agreement could facilitate smoother cooperation in this area.

Energy supply is yet another area of mutual importance. With India being a major energy importer, the U.S. can support its diverse energy needs, including renewables and clean coal, while addressing concerns about oil import volumes from nations like Russia.

The healthcare sector also presents a complementary advantage for both countries. The U.S. excels in drug development, while India is a leader in manufacturing pharmaceuticals. This relationship can help keep essential medicines affordable and accessible.

Facilitating mutual investments can further strengthen these economic ties. A deal that lowers barriers for investment could encourage Indian companies to invest more in the U.S., creating jobs and enhancing bilateral ties.

Such a deal would not only solidify the economic relationship but also provide strategic advantages amidst ongoing global competition, especially regarding China’s influence in the Indo-Pacific region.

Both countries need a strong partnership now more than ever. If Trump and Modi can find common ground on trade issues, they can enhance cooperation in technology, energy, and healthcare while building a robust economic alliance to counter China’s dominance.