India’s Import Duties & Trade Relations with the US

India’s import duties, also known as tariffs, have been a point of contention in trade relations with the United States. The US has often criticized India for imposing high tariffs on imported goods. However, India maintains that its tariffs are fully compliant with global trade rules set by the World Trade Organization (WTO).

What are tariffs?

• Tariffs are taxes imposed by a country on imported goods. They help protect domestic industries by making foreign products more expensive.
• Are India’s tariffs legal under WTO rules? The WTO allows developing countries like India to maintain higher tariffs in exchange for commitments on:
  • Trade-Related Aspects of Intellectual Property Rights (TRIPS)
  • Services trade liberalization
  • Agricultural trade regulations
• When the WTO was formed in 1995, developed nations, including the US, agreed to this framework. Thus, India's import duties are not arbitrary but are based on WTO agreements.

US Pressure on India:

The US has been pushing India to open its markets further and lower tariffs. Some key US demands include:

• Government Procurement Access – The US wants American firms to compete for Indian government contracts.
• Reduction in Agricultural Subsidies – The US claims India’s subsidies distort trade.
• Patent and Intellectual Property Reforms – The US seeks stronger protections for American pharmaceutical and tech firms.
• Removal of Data Localization Restrictions – The US wants cross-border data flows to remain unrestricted.

India has resisted these demands for decades to protect its domestic economy, farmers, and industries.

Impact of US Allegations on India’s Trade

• The US claims that India's high tariffs create an unfair trade environment. However, many Indian exports to the US, such as iPhones, diamonds, and petrochemicals, have low domestic value addition. This means a large portion of these exports are simply processed in India but manufactured elsewhere.
• The US is considering imposing reciprocal tariffs on Indian goods.
• Challenges in India-US Free Trade Agreement (FTA): Negotiating a comprehensive FTA with the US is difficult due to:
• Diverging interests on agriculture, patents, and digital trade
• Political uncertainties in the US (e.g., Trump's possible return to power)
• The US's history of imposing trade restrictions despite ongoing negotiations
  • Thus, an FTA may not be the best option in the short term.

India’s Possible Responses

The Global Trade Research Initiative (GTRI) suggests India has three main options:

• Explain WTO Compliance – India should clearly communicate to the US that its tariffs follow WTO rules.
• Offer Lower Tariffs on Some Goods – India could offer zero or minimal tariffs on industrial goods to avoid US retaliation.
• Absorb US Tariffs Without Retaliation – GTRI suggests India could take a "wait-and-watch" approach, implying patience and strategic resilience.