India’s Strategic Diplomacy: A Game-Changer in US Trade Relations

India’s diplomatic response to US tariffs, rather than retaliation, is being praised as a strategic move that could foster strong trade relations. By avoiding counter-tariffs, India has positioned itself for productive negotiations with the US, aiming to resolve tariff disputes and expand bilateral trade. Challenges, including agricultural market access, remain, but optimism persists for a phased trade agreement. With a record $130 billion trade volume and ambitions to reach $500 billion by 2030, India’s measured approach highlights the value of diplomacy in global trade.

• Manoj Motwani

India’s decision to embrace diplomacy over retaliation in response to the Trump administration’s tariff policies is being hailed as a masterstroke that could set the stage for fruitful trade negotiations between the two nations. Mark Linscott, a senior advisor on trade at the US-India Strategic Partnership Forum (USISPF), has commended this approach, describing it as “exceptionally prudent” with the potential for long-term economic gains.

Linscott, a former assistant US trade representative, shared his insights in an interview, praising India’s restraint in the face of sweeping tariffs imposed by the US on several imports, including those from India. These measures, announced by then-President Donald Trump, rattled global markets and raised fears of an escalating trade war.

Despite domestic criticism from opposition parties, Prime Minister Narendra Modi’s government chose not to retaliate with counter-tariffs, a decision Linscott believes was both pragmatic and forward-thinking. He noted that retaliatory actions often provoke further countermeasures, leading to what he described as a “downward spiral” of escalating tensions. By opting for diplomacy, India has not only avoided exacerbating trade conflicts but has also laid a solid groundwork for upcoming negotiations.

The two nations are now actively working towards a bilateral trade agreement, with an immediate focus on resolving tariff disputes. Linscott expressed optimism about the potential for a swift resolution to these issues, which could prompt the US to reconsider the tariffs specifically targeting Indian goods. Moreover, discussions are underway to finalise an initial phase of the trade agreement by the end of the year. However, a comprehensive deal might take several more years, potentially extending into 2026 or 2027 due to the complexities involved.

One of the critical challenges in these negotiations is India’s reluctance to open its markets to US agricultural and dairy products, sectors that are vital to American farmers. Linscott acknowledged the cultural and political sensitivities surrounding the dairy industry in India but expressed confidence that agricultural trade would feature prominently in the discussions. He highlighted the mutual benefits of agricultural exchanges, suggesting that both countries have much to gain from greater market access.

The Trump administration’s tariff policies, rooted in grievances over perceived inequities in global trade practices, have had a far-reaching impact. Linscott pointed to the failure of past World Trade Organization negotiations, such as the Doha Round, as a source of frustration that has contributed to the current aggressive trade stance. The imposition of broad, nearly universal tariffs with minimal exceptions took many by surprise and has led to significant economic disruptions. Global markets have reacted negatively, with Linscott warning that the risks posed by these policies are “unprecedented,” evoking comparisons to the economic turmoil of the World War II era.

Despite these challenges, India has an opportunity to turn the situation to its advantage. Linscott suggested that by moving quickly to negotiate, India could secure preferential access to the US market, potentially mitigating some of the negative effects of the tariffs. He also highlighted the record-high bilateral trade between the two nations, which reached $130 billion in goods and services in the past year. The US exported $41.8 billion worth of goods to India while importing $87.4 billion, resulting in a trade deficit of $45.7 billion.

Looking ahead, leaders from both countries have set an ambitious target to more than double bilateral trade to $500 billion by 2030, under the banner of "Mission 500." Achieving this goal will require sustained diplomatic efforts and a willingness to address contentious issues, but the groundwork laid by India’s measured response to the tariffs offers a promising start.

In a world increasingly divided by trade conflicts, India’s approach serves as a reminder of the power of diplomacy and strategic foresight. As negotiations progress, the hope is that both nations can find common ground to foster economic growth and strengthen their partnership for years to come.