U.S., India Trade Officials to Meet as They Seek Off-Ramp From Recent Tensions

Stocks in India have been affected by 50% tariffs from the U.S. (Indranil Mukherjee / AFP / Getty Images)

Key Points

About This Summary

• Indian trade negotiators will visit the U.S. next week to improve relations after tariffs and heated rhetoric.
• Sergio Gor, nominated as ambassador to India, said the U.S. and India are actively negotiating a deal.
• A trade package would allow a large degree of U.S. exports into India tariff-free over a period of time.

Indian trade negotiators are scheduled to visit the U.S. this week as the two countries try to get their relationship back on track after weeks of heated rhetoric and 50% tariffs on India.

After taking India to task for buying Russian oil and describing its economy as “dead,” President Donald Trump has taken a softer tone in social media posts, calling Prime Minister Narendra Modi a “dear friend” and saying: “I feel certain that there will be no difficulty in coming to a successful conclusion for both of our Great Countries!” Modi has echoed the sentiments.

On Thursday, during his Senate confirmation hearing to become the next ambassador to India, Sergio Gor, currently director of presidential personnel at the White House, said the two sides are actively negotiating and the White House had invited the Indian commerce and trade ministers to visit next week. “We aren’t that far apart on a deal,” said Gor. “Right now, they are negotiating the nitty-gritty of a deal.”

Both sides look eager to get relations back on track. “There is an opening that was created by the leaders [through] social media diplomacy. Sergio Gor can build on that and the fact he is eager to get out to Delhi ASAP is a good sign. He doesn’t want to inherit a disaster and wants to bring some positive news when he gets out there. That could that serve as a milestone,” says Basant Sanghera, managing principle at consultancy the Asia Group, who previously worked as a South Asia expert in the State Department.

“In terms of India, there is more space for negotiation domestically as Modi stood tall in the face of the escalation and now there is an opening for rapprochement,” Sanghera adds.

The nomination of Gor, who is close to the president, for the post in New Delhi could also help. “It is good that you have a man close to [Trump] in Delhi. More than anything else it will reduce the communications gap,” says Jayant Krishna, nonresident senior fellow with the Chair on India and Emerging Asia Economics at the Center for Strategic and International Studies who previously held various leadership roles at Indian conglomerate Tata Group.

The tariffs and the fallout raised concerns India could be pulled toward China, especially as Modi and Chinese leader Xi Jinping vowed in recent weeks to repair their relationship that was strained after a 2020 border skirmish.

But U.S. officials note that India has more in common with the U.S. than China. Secretary of State Marco Rubio on Thursday described the U.S.-India relationship one of the country’s most important and Gor described India as a “cornerstone” of regional stability and critical to advancing both countries’ interests.

Russian oil purchases though are a major obstacle in the relationship. In an CNBC interview Thursday, Commerce Secretary Howard Lutnick echoed expectations the two sides would work things out but noted that India had to stop its purchases of Russian oil.

The ability to buy oil at a 20% discount from Russia has helped India’s fiscal situation, Krishna says, noting that India hasn’t retaliated and China, which is a bigger buyer of Russian oil, has been spared the penalty.

In his Senate hearing, Gor responded to queries about why China had not faced secondary tariffs as well. “We hold our friends to a different standard. Frankly, we expect more from India than other nations,” Gor said. “I do think it will get resolved over the next couple of weeks.”

Sequencing will be important in terms of any resolution on Russian oil purchases, leader-level meetings and progress on trade. The two side have been working on a trade package that would eventually allow a large degree of U.S. exports into India tariff-free over a period, with U.S. trade representatives being sensitive about India’s domestic considerations related to its smaller farmers in areas like dairy and GMO crops.

Any deal is likely to include sweeteners in the form of investment or purchase commitments by India around artificial intelligence, energy, ethanol and defense, as well as overtures to give the U.S. greater access to its markets and its burgeoning middle class. The two sides had initially outlined a lofty target of increasing bilateral trade to $500 billion by 2030 from about $150 billion today.

The latest efforts to get talks going again is a positive but there could still be a period of bumpiness ahead. India will face a fiscal hit from the tariffs and foreign investors will continue to sell as it takes time for a trade deal to come together and the benefits from its recent tax overhaul to take hold, says Shumita Deveshwar, TS Lombard’s chief India economist says via email.

“However, the longer term outlook is brighter if the trade talks with the U.S. and the EU are concluded, the tax cuts and lower inflation boost consumer spending, and easier monetary conditions help investment pick up,” Deveshwar adds.

Write to Reshma Kapadia at reshma.kapadia@barrons.com