Over the past two weeks, ties between India and the United States have descended into an exchange of rhetoric and bitterness that few could’ve seen coming.
India was supposed to be one of the first countries to ink a trade deal with US President Donald Trump. Instead it now faces 50% tariffs on its exports to its biggest trading partner.
Meanwhile, Trump has, in quick succession, closed deals with Japan, South Korea, the European Union, and even India’s arch-rival Pakistan.
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For India, the change of status quo was largely unexpected, considering Indian Prime Minister Modi agreed to target a deal by fall 2025, and more than double bilateral trade to $500 billion by 2030. Modi was also one of the first world leaders to fly to Washington to meet with Trump following the latter’s return to power in January.
And yet talks between the two allies collapsed despite five rounds of trade talks.
Speaking to Reuters, officials close to the Trump and Modi administrations say that was the result of miscalculations and overconfidence from India and the US President’s desire for a headline-grabbing deal.
Indian government officials told Reuters that New Delhi believed early on that after visits by Indian Trade Minister Piyush Goyal to Washington and US Vice President JD Vance to Delhi, it had made a series of deal-clinching concessions.
The Modi government was offering zero tariffs on industrial goods that formed about 40% of US exports to India. It was also planning to gradually lower tariffs on US cars and alcohol with quotas — despite domestic pressure.
To bridge the $47 billion goods trade gap, India had also agreed to buy up to $25 billion in US energy and boost defence imports. In fact, India’s imports of US crude jumped by more than 50% in the first half of the year, the Times of India newspaper reported this week.
“Most differences were resolved after the fifth round in Washington, raising hopes of a breakthrough,” one official said. Negotiators believed the US would accommodate India’s reluctance on duty-free farm imports and dairy products from the US they added.
But that was a miscalculation. Trump saw the issue differently and wanted more concessions.
“A lot of progress was made on many fronts in India talks, but there was never a deal that we felt good about,” one White House official said.
“We never got to what amounted to a full deal – a deal that we were looking for.”
Overconfidence… and a reality check
Indian officials say the Modi administration grew overconfident after Trump talked up a “big” imminent deal, taking it as a signal that a favourable agreement was in hand. Officials expected Trump to announce the deal himself weeks before the August 1 deadline. But the announcement never came.
New Delhi then hardened its stance, especially on agriculture and dairy, two highly sensitive areas for the Indian government.
“We are one of the fastest growing economies, and the US can’t ignore a market of 1.4 billion,” one Indian official involved in the negotiations said in mid-July.
Negotiators even pushed for relief from the 10% average US tariff announced in April, plus a rollback of steel, aluminium and auto duties.
Later, India scaled back expectations after the US signed trade deals with key partners such as Japan and the EU, hoping it could secure a similar 15% tariff rate with fewer concessions.
That was unacceptable to the White House. “Trump wanted a headline-grabbing announcement with broader market access, investments and large purchases,” a Washington-based source familiar with the talks said.
An Indian official acknowledged New Delhi wasn’t ready to match what others offered.
South Korea, for example, struck a deal just before Trump’s August 1 deadline, securing a 15% rate instead of 25% by offering $350 billion in investments, higher energy imports, and concessions on rice and beef.
The Pakistan factor
Mark Linscott, a former US Trade Representative who now works for a lobby group that is close to the discussions between the two nations said that “at one point, both sides were very close to signing the deal.”
“The missing component was a direct line of communication between President Trump and Prime Minister Modi.”
A White House official strongly disputed this, noting other deals had been resolved without such intervention.
An Indian government official involved in the talks said Modi could not have called, fearing a one-sided conversation with Trump that could put him on the spot.
However, the other three Indian officials said Trump’s repeated remarks about mediating the India-Pakistan conflict further strained negotiations and contributed to Modi not making a final call.
Analysts have previously noted that the Modi government has been irked by Trump’s growing closeness with Pakistan — a country that India says has for years backed terrorist activity and where 9/11 mastermind Osama-bin-Laden was found to be living.
“Trump’s remarks on Pakistan didn’t go down well,” one official told Reuters. “Ideally, India should have acknowledged the US role, while making it clear the final call was ours.”
A senior Indian government official blamed the collapse on poor judgment, saying top Indian advisers mishandled the process.
“We lacked the diplomatic support needed after the US struck better deals with Vietnam, Indonesia, Japan and the EU,” the official said.
“We’re now in a crisis that could have been avoided.”
The Russian oil fallout
The crisis the official is referring to is India now facing cumulative tariffs of 50% after Trump slapped an additional 25% tariffs — alongside his previously announced 25% levies — as a “punishment” for purchasing Russian oil.
Trump has in recent days taken up the hatchet against India, citing its large purchases of Russian oil, which he and his aides say are funding Moscow’s war machine.
India, meanwhile, has refused to blink first and its foreign ministry has issued scathing criticism of Trump’s rhetoric this week. “India began importing from Russia because traditional supplies were diverted to Europe after the outbreak of the conflict. The United States at that time actively encouraged such imports by India for strengthening global energy markets stability,” the ministry said in a statement on Monday.
“It is revealing that the very nations criticising India are themselves indulging in trade with Russia,” it added, citing the EU’s purchases of LNG, fertilisers, mining products, chemicals, iron and steel and machinery and transport equipment from Moscow.
The statement also made note of American purchases of uranium, palladium, fertilisers and chemicals from Russia — trade that Trump said on Tuesday he had no knowledge of.
The foreign ministry statement and an increasingly jingoistic atmosphere in India — fuelled by its nationalistic media — would make further negotiations increasingly complicated for the Modi government. Modi has led India for more than decade, thanks to a rise in nationalism and a promise to ‘Make India Great Again’.
In keeping with that rhetoric, Modi’s recent public statements suggest he is looking to dig in his heels against Trump.
Amid Trump’s tariff threats, for instance he called on Indians to buy locally made goods to boost the economy. He also claimed India was on track to become the world’s third biggest economy, in an apparent jab against Trump’s remarks calling the country a “dead economy”.
Still, officials on both sides believe a deal can be salvaged from here. Talks are ongoing, with a US delegation expected in Delhi later this month.
“It’s still possible,” one White House official said.
The Indian government is also re-examining areas within the farm and dairy sectors where concessions can be made, one official told Reuters. On Russian oil, India could reduce some purchases in favour of US supplies if pricing is matched.
Salvaging the talks would be important too, considering ongoing friction threatens to derail 25 years of consistent effort to rebuild ties and erase distrust between India and the US.
A deal from here “likely will require direct communication between the prime minister and the president,” US official Linscott told Reuters.
“Pick up the phone. Right now, we are in a lose-lose. But there is real potential for a win-win trade deal.”
- Reuters, with additional editing and inputs from Vishakha Saxena
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