The relationship between India and the United States has blossomed into a strategic partnership, with economic ties forming a crucial pillar. Yet, despite the growing bonhomie, a comprehensive trade deal remains elusive, largely due to persistent disagreements over market access and tariffs. One figure frequently highlighted in these discussions is India’s average applied tariff rate of approximately 18%, a point of contention for US exporters seeking greater access to the subcontinent’s burgeoning market.
To understand the significance of this 18% tariff, one must view it in the context of global trade and compare it with the rates imposed by India’s economic rivals. For American businesses, an 18% tariff translates directly into higher costs, making their products less competitive in the Indian market. This rate particularly impacts sectors like agriculture, automotive components, and various manufactured goods, where US companies often face significant duties.
When we look at other major economies that compete with India for US trade and investment, a stark contrast emerges. China, for instance, has an average Most Favored Nation (MFN) tariff rate that, while varying greatly by product, is generally lower than India’s, hovering around 7.5% for industrial goods. Countries like Vietnam, a rising manufacturing hub in Southeast Asia, often benefit from lower tariffs with the US due to various trade agreements and generally pursues more open trade policies, with average applied tariffs significantly below India’s. Even closer to home for the US, Mexico and Canada enjoy virtually tariff-free trade on most goods under the US-Mexico-Canada Agreement (USMCA), giving them an enormous competitive advantage in attracting US supply chains and investment.
This discrepancy in tariff rates has profound implications. For US businesses, India’s higher tariffs act as a significant barrier, potentially diverting trade and investment to countries with more favorable import duties. While India argues that these tariffs are necessary to protect nascent domestic industries and generate revenue, critics contend that they hinder India’s integration into global supply chains and could slow down its economic growth by limiting access to advanced US technology and goods. For India, lowering tariffs could attract more foreign direct investment, boost manufacturing, and enhance its “Make in India” initiative, provided it balances these moves with the protection of sensitive domestic sectors.
The ongoing negotiations for an India-US trade deal are thus complex, requiring a delicate balance between market access demands from the US and India’s developmental and protective imperatives. Bridging the gap on tariffs, particularly bringing the average down to a level more comparable with its regional and global peers, would not only unlock significant trade potential but also solidify the strategic economic partnership between the world’s two largest democracies. A more aligned tariff structure would benefit consumers in India through increased choice and potentially lower prices, while providing American businesses with a fairer playing field to compete in one of the world’s most promising markets.
