Opportunities, Challenges, and the Road Ahead
I had the privilege of studying in the United States in the early 1990s, and subsequently worked there for a few years. Over the past three decades, I’ve been actively engaged in business with USA, building a strong professional connection. In addition, my longstanding involvement with the Indo-American Chamber of Commerce, including serving on various committees and as Chairman of the Karnataka branch, has deepened my commitment to fostering Indo-US trade relations, which are of great personal and professional significance to me.
The two countries have always shared a mutually advantageous, yet somewhat complex trade relationship that has been the case for a long time. It is a relationship that has been influenced over the years by multiple geopolitical changes, strategic alliances as well as the shifting economic priorities. The cooperation between India and the US was founded on shared democratic values, technological association, and progressively strong connections between people. Conversely, there are also challenges such as trade imbalances, tariff regulations, and the emergence of AI-driven economies.
While both countries have a lot to gain from greater economic cooperation due to their large markets and democratic values, there are some prolonged trade tensions and certain protectionist measures that could pose challenges in the years ahead.
The Trade Deficit: A Mounting Issue
Trade between India and the United States, according to various estimates including goods and services is nearing USD 200 billion now. It was already $151 billion in 2021 (US Dept. of State),
According to the US Dept. of State, India maintains a trade surplus, exporting goods worth $87.4 Billion to the U.S. while importing $41.8 Billion. This discrepancy has raised some concerns in Washington. The U.S. administration perceives this broadening trade deficit as unfair to the US.
American leaders and diplomats have always been pushing for greater market access and lower tariffs on U.S. goods in India. President Trump has always been vocal about what he terms “tremendous tariffs” imposed by India. If history is a guide to us, then we can certainly expect a demand from the US to lessen trade barriers, greater access to Indian markets and for India to purchase more American goods. This will be especially so in the sectors like defence, energy, and technology.
Tariffs, Protectionism, and the Unfinished FTA
India is a developing economy and like other growing economies do, India also imposes protective duties on various imported goods, including automobiles, agricultural products, and electronics. This has emerged as a significant obstacle in the trade relationship. The tariffs aim to bolster domestic industries; however, it frequently conflicts with the expectations of the United States as they advocate for a more liberalized trade environment.
In contrast to the U.S.-Mexico-Canada Agreement and other free trade agreements that the United States has successfully concluded, a comprehensive trade agreement between India and the U.S. is still in the works and not finalized yet. Although both countries are participants in the Indo-Pacific Economic Framework for Prosperity (IPEF) – it doesn’t include tariff reductions as of now.
AI, Digital Trade, and the Next Frontier
AI and digital trade are set to redefine India-U.S. commerce beyond traditional goods and services. India’s IT sector is deeply embedded in the American tech ecosystem and so AI-driven automation, cloud computing, and semiconductor collaborations shows massive opportunities. The U.S. is still India’s largest market for IT services, and AI-driven software exports can further accelerate India’s position as a global technology powerhouse.
India is actively refining its digital trade policies. United States, in some sense, has already established rigorous regulations concerning data localization and artificial intelligence ethics. There have been concerns regarding data privacy, cybersecurity, and intellectual property rights in India. A collaborative regulatory framework can facilitate billions in cross-border investments in areas such as artificial intelligence, quantum computing, and cybersecurity for sure.
Energy, Defence, and Supply Chains – The Strategic Sectors
The United States is still the top among India’s leading suppliers of crude oil and liquefied natural gas. Energy trade is also one key component of the bilateral relations between the two countries. As global energy markets evolve, it will be key to align efforts on clean energy initiatives, advancements in battery technology, and investments in renewable energy.
Recent geo-political changes have uncovered some flaws in global supply chains. This has prompted a shift towards diversification. The United States is eager to reduce its dependency on China and could capitalize on India’s manufacturing ecosystem for sectors such as electronics, pharmaceuticals, and critical technologies. Through initiatives like ‘Make in India’ and the Production Linked Incentive (PLI) schemes, India is also trying to position itself as a strong manufacturing hub.
India is diversifying its defence procurement strategies, decreasing its reliance on Russia while increasing acquisitions from the United States and other countries. Given the rising geopolitical uncertainties, the Indo-U.S. defence collaboration, which includes joint ventures and technology transfers, has the potential to significantly enhance India’s military capabilities. This will also help reduce the trade deficit which is an issue for President Trump.
What Lies Ahead?
In my opinion, while trade imbalances and tariff disputes are expected to continue for a while, the strategic interests shared by India and the United States are too important to allow trade tensions to overshadow our broader relationship. The future of economic engagement will also be shaped a lot by the advancements in AI-driven industries, digital trade agreements, and supply chain diversification. One thing is certain: With President Trump in office, there’s never going to be a dull day!
