Unlocking the Power of Trade Deals: 15 Essential Facts You Must Know!

India and the USA are gearing up for an interim trade deal, likely to be finalized by the end of June. This agreement is particularly significant because the USA is India’s largest trading partner, making up 18% of India’s exports and 6.22% of its imports. Both countries hope to create a beneficial arrangement, especially ahead of a more comprehensive Bilateral Trade Agreement later this year.

So, what exactly are trade deals? Let’s break it down.

What Are Trade Deals?

Trade deals are agreements between countries that outline how they trade goods and services. They often allow countries to import and export products with reduced taxes, or tariffs. For example, the Australia-India Comprehensive Economic Cooperation Agreement lets Australian wine and avocados enter Indian markets at lower prices.

How Tariffs Work

Tariffs are taxes imposed on foreign goods. Trade deals usually aim to lower or remove these taxes. For instance, the India-UAE Comprehensive Economic Partnership Agreement has made it cheaper for goods from the UAE to enter India.

Types of Trade Deals

Different trade agreements exist, such as Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs). For example, India’s CEPA with the UAE covers not just goods but services and intellectual property, while others might focus only on products.

Why Tariffs Matter

High tariffs can protect local businesses. India imposes a 100% tariff on agricultural imports to safeguard its farmers from cheaper foreign goods.

Non-Tariff Barriers

Trade deals also involve non-financial barriers like health and safety standards. Recently, Indian mangoes were rejected in the USA due to documentation issues, highlighting that rules can matter just as much as tariffs.

The Negative List

A "negative list" includes products exempt from tariff cuts. For instance, India’s FTA with Japan has agriculture and dairy products on this list, keeping them protected.

Evolving Focus on Services

Trade isn’t just about goods anymore. Agreements now often cover services, allowing professionals like Indian nurses to work abroad. For example, an agreement between India and the UK facilitates this for nurses.

Rules of Origin

These rules ensure that products benefiting from trade deals have a specific percentage of local content. For a product from Sri Lanka to enjoy tax benefits under the India-Sri Lanka FTA, a certain portion must originate from either India or Sri Lanka.

Trade Deficits

If a country imports significantly more than it exports, it can lead to trade deficits and political backlash. The goods trade deficit between the USA and India reached USD 41.18 billion in 2024-25. This interim trade deal is likely to address these concerns.

Safeguards in Trade Agreements

To prevent market flooding, trade deals may include safeguard provisions that allow countries to temporarily impose tariffs if imports rise suddenly, as seen with onions impacting local farmers.

Bilateral vs. Multilateral Agreements

Trade agreements can be bilateral, regional, or multilateral. India participates in various frameworks, each aimed at achieving different objectives.

Negotiation Takes Time

Even small tariff changes can take years to negotiate, as seen in India’s long-standing negotiations for the Australia-India Economic Cooperation and Trade Agreement.

The Role of Public Sentiment

Public opinion and protests can greatly influence trade negotiations. In India, farmers and local industries have voiced their concerns, impacting terms in trade discussions like those in the Regional Comprehensive Economic Partnership (RCEP) negotiations.

Daily Impact of Trade Deals

Trade deals shape our everyday lives more than we realize. For example, the smartphone you bought or the rice India exports to Egypt are all products of agreements that ensure affordability and availability.

In summary, as India and the USA work towards their interim trade deal, it highlights the greater context of how trade agreements can influence economies, societies, and everyday items in our lives. Understanding these dynamics can help us grasp the larger picture of global trade.

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INDIA US TRADE DEAL, FTA, TRADE DEAL, WHY TRADE DEALS MATTER 15 THINGS YOU NEED TO KNOW ABOUT THEM