Agricultural Tensions in the India-US Trade Negotiations
Donald Trump has fired a fresh salvo in his tariff war, this time aimed directly at India. A new 25 per cent tariff on Indian goods may seem like just another Trump headline, but there’s a deeper message in it: Washington’s patience with India is running out.
Despite five rounds of negotiations and a sixth round expected later this August, India and the US are still nowhere close to a trade deal. The biggest roadblock? Agriculture and dairy. This isn’t a new problem. Agriculture has always been politically sensitive, for both countries. While the US wants better market access for its farm exports, India remains unwilling to open up a sector it has protected fiercely for decades.
India enjoys a healthy US$3.46 billion surplus in agricultural trade with the US, and American buyers are the second-largest consumers of Indian farm exports. But India also imposes some of the highest agricultural tariffs in the world, averaging 39 per cent. For instance, Skimmed Milk Powder attracts a whopping 60 per cent tariff. Fresh cheese and curd face 30 per cent. Add restrictions on genetically modified (GM) crops like soy and corn, and mandatory licenses for livestock imports, and you start to see why the US is increasingly pushing for India to open up its agricultural sector.
NITI Aayog released a working paper in July (which was withdrawn soon after its release) exploring how India could promote agricultural trade with the US. It included controversial suggestions like easing GM crop restrictions. While the paper was withdrawn, it offers a nuanced solution: What if India could engage the US on soybeans without crossing the political sensitivities?
Shekhar Gupta pointed this out in his Cut the Clutter episode, India already imports 58 per cent of its edible oils, including soybean oil. A smart compromise could be importing soybean seeds, extracting oil in coastal facilities, and exporting the remaining meal as cattle feed. That way, India keeps GM products out of its food chain while giving the US something it wants.
Instead of simply keeping its tariffs high, India could consider more nuanced tools. For instance, a duty-free Tariff Rate Quota (TRQ) could allow a fixed amount of US dairy to enter India without tariff shocks. India could also lower duties on products like apples, nuts, and marine goods, many of which face up to 100 per cent tariffs today. In return, India can demand fairer treatment for its exports, like rice. It’s time India acknowledged that agriculture’s overprotection is starting to cost us. Reforming trade policy doesn’t mean giving up sovereignty—it means growing up economically. With Trump ramping up pressure and trade becoming increasingly transactional, India might have to make some concessions. Because in today’s world, no deal is worse than a bad one.