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3 Feb 2026·Source: The Indian Express
4 min
International RelationsEconomyNEWS

India and US Trade Relations: Tariffs, Diversification, and Policy Influence

Analyzing India-US trade dynamics, tariff impacts, diversification, and policy influences.

India and US Trade Relations: Tariffs, Diversification, and Policy Influence

Photo by Markus Winkler

The article discusses the complex journey of India-US trade relations, marked by tariff disputes and diversification efforts. Initially, India faced a 25% tariff on Russian crude oil. The article highlights India's strategy to diversify exports to the US in response to tariffs. It also examines how former US President Trump's policies influenced India's trade and goods exchange with the US. The article further touches upon the sectoral competition and tariffs between the two nations. It also mentions India stopping buying Russian crude oil and instead buying from the US and Venezuela, according to Trump.

Key Facts

1.

India faced 25% tariff on Russian crude oil initially

2.

India diversified exports to the US in response to tariffs

3.

Trump's policies influenced India-US trade relations

UPSC Exam Angles

1.

GS Paper 2: Bilateral relations, effect of policies of developed countries on India's interests

2.

Connects to the syllabus on international relations, trade agreements, and economic policies

3.

Potential question types: Statement-based, analytical questions on trade dynamics

Visual Insights

More Information

Background

The India-US trade relationship has evolved significantly over the decades. Initially, trade was limited due to India's closed economy policies and import substitution strategies. The economic reforms of 1991, which included liberalization, privatization, and globalization, opened up the Indian economy and paved the way for increased trade with the US. This shift led to a gradual increase in bilateral trade and investment flows. Over time, various agreements and dialogues have been established to foster trade relations. The Trade Policy Forum, for example, serves as a platform for discussing and resolving trade-related issues. The relationship has also faced challenges, including disputes over tariffs, intellectual property rights, and market access. These issues are often addressed through negotiations and bilateral discussions. The Generalised System of Preferences (GSP), which provided preferential tariff treatment to certain Indian exports, has also been a point of contention. The legal and constitutional framework governing India's trade relations includes the Constitution of India, which empowers the government to enter into trade agreements with other countries. The Foreign Trade (Development and Regulation) Act, 1992 provides the legal basis for regulating foreign trade. India's trade policy is also influenced by its commitments to the World Trade Organization (WTO), which sets the rules for international trade.

Latest Developments

Recent years have seen increased focus on strengthening India-US trade ties. Initiatives like the India-US Commercial Dialogue aim to promote trade and investment by addressing specific barriers and facilitating business partnerships. The two countries are also exploring opportunities for cooperation in emerging sectors such as digital economy, healthcare, and renewable energy. These efforts are geared towards diversifying the trade basket and reducing reliance on traditional sectors. However, trade tensions persist, particularly concerning market access and tariff barriers. The US has raised concerns about India's import duties on certain products, while India has expressed concerns about non-tariff barriers and regulatory hurdles in the US market. These issues are often discussed at various bilateral forums, including the Trade Policy Forum. Stakeholders from both sides are advocating for a more balanced and reciprocal trade relationship. The future outlook for India-US trade relations is positive, with both countries recognizing the strategic importance of a strong economic partnership. The focus is on deepening cooperation in areas of mutual interest, such as technology, innovation, and supply chain resilience. The goal is to create a more predictable and transparent trade environment that benefits businesses and consumers in both countries. The Make in India initiative and the US's focus on supply chain diversification present opportunities for enhanced collaboration.

Frequently Asked Questions

1. What are the key facts about India-US trade relations relevant for the UPSC Prelims exam?

For the UPSC Prelims, remember that India faced a 25% tariff on Russian crude oil initially. Also, note that India diversified its exports to the US in response to tariffs imposed. Trump's policies also influenced trade relations.

Exam Tip

Focus on the percentage tariff and the diversification strategy. These are factual points that can be directly tested.

2. What is the main reason for India's diversification of exports to the US, as mentioned in the article?

India diversified its exports to the US primarily in response to the tariffs imposed, as a strategy to maintain and potentially increase trade volume despite the added costs.

3. How did former US President Trump's policies impact India's trade and goods exchange with the US?

Trump's policies influenced India's trade and goods exchange with the US. The article mentions India stopping buying Russian crude oil and instead buying from the US and Venezuela, according to Trump.

4. Why is the topic of India-US trade relations frequently in the news?

India-US trade relations are frequently in the news due to ongoing negotiations, policy changes, and their significant impact on both economies. Recent developments include initiatives like the India-US Commercial Dialogue.

5. What are the potential benefits and drawbacks of the current India-US trade dynamics for the Indian economy?

The benefits include increased market access and technology transfer. Drawbacks could include vulnerability to US policy changes and potential trade imbalances. Diversification is key to mitigating risks.

6. What specific reforms are needed to further strengthen India-US trade relations?

Reforms could focus on reducing non-tariff barriers, streamlining regulatory processes, and enhancing cooperation in emerging sectors like digital economy and renewable energy.

7. What was the initial tariff imposed on India for Russian crude oil, as per the article?

As per the article, India initially faced a 25% tariff on Russian crude oil.

8. What recent developments are shaping India-US trade relations?

Recent developments include the India-US Commercial Dialogue, which aims to promote trade and investment by addressing specific barriers and facilitating business partnerships. Cooperation in sectors like digital economy, healthcare, and renewable energy is also being explored.

9. What is the historical background of India-US trade relations?

Initially, trade was limited due to India's closed economy policies and import substitution strategies. The economic reforms of 1991, including liberalization, privatization, and globalization, opened up the Indian economy and paved the way for increased trade with the US.

10. How might changes in India-US trade policies impact the common citizen?

Changes in trade policies can affect the prices of goods, availability of products, and job opportunities. Increased trade can lead to lower prices and more choices, while trade disputes may lead to higher prices and limited options.

Practice Questions (MCQs)

1. Consider the following statements regarding India-US trade relations: 1. The article mentions India initially faced a 25% tariff on Russian crude oil. 2. According to the article, India stopped buying Russian crude oil and instead bought from the US and Venezuela, as stated by former US President Trump. Which of the statements given above is/are correct?

  • A.1 only
  • B.2 only
  • C.Both 1 and 2
  • D.Neither 1 nor 2
Show Answer

Answer: C

Both statements are correct as per the provided summary. Statement 1 is correct because the article explicitly mentions that India faced a 25% tariff on Russian crude oil. Statement 2 is also correct because the article states that according to Trump, India stopped buying Russian crude oil and instead bought from the US and Venezuela.

2. Which of the following initiatives is aimed at promoting trade and investment between India and the US by addressing specific barriers and facilitating business partnerships?

  • A.Trade Policy Forum
  • B.India-US Commercial Dialogue
  • C.Make in India initiative
  • D.Generalised System of Preferences (GSP)
Show Answer

Answer: B

The India-US Commercial Dialogue is aimed at promoting trade and investment between India and the US by addressing specific barriers and facilitating business partnerships. The Trade Policy Forum serves as a platform for discussing and resolving trade-related issues. The Make in India initiative is focused on boosting domestic manufacturing. The Generalised System of Preferences (GSP) provides preferential tariff treatment to certain exports.

3. The Foreign Trade (Development and Regulation) Act, 1992 provides the legal basis for which of the following?

  • A.Regulating foreign trade
  • B.Promoting domestic manufacturing
  • C.Attracting foreign investment
  • D.Managing fiscal deficit
Show Answer

Answer: A

The Foreign Trade (Development and Regulation) Act, 1992 provides the legal basis for regulating foreign trade in India. It outlines the procedures and regulations for import and export activities. The other options are related to economic development but are not the primary focus of this particular act.

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