Mumbai, September 16, 2025

India and the United States are restarting trade negotiations in New Delhi this week, as India reports a narrower merchandise trade deficit for August 2025. The talks aim to address tensions sparked by U.S. tariffs of up to 50% on Indian goods, imposed due to India’s continued Russian oil purchases.

Narrowing Trade Deficit Offers Relief

India’s merchandise trade deficit fell to US$26.49 billion in August from US$27.35 billion in July. Exports dipped slightly to US$35.2 billion, particularly to the U.S., due to tariffs impacting textiles, engineering goods, and chemicals. Imports contracted more sharply to US$61.69 billion, driven by lower crude oil prices (US$75/barrel) and reduced gold imports (down 15%). This improvement supports India’s fiscal stability, with reserves at US$650 billion and the rupee steady.

Tariff Tensions Threaten Export Competitiveness

The U.S., India’s largest trading partner with over US$200 billion in annual trade, imposed tariffs that risk undermining India’s export-driven sectors. Commerce Minister Piyush Goyal will seek tariff relief, while the U.S. is expected to push for greater market access in agriculture, pharmaceuticals, and digital services. Industry leaders warn that unresolved tariffs could cut exports by 10-15%, favoring competitors like Vietnam.

Strategic Context and “Make in India” Momentum

The talks occur within the Indo-Pacific Economic Framework and Quad alliance, offering leverage for de-escalation. India’s “Make in India” initiative, bolstered by manufacturing incentives, has reduced import reliance, particularly in electronics and electric vehicles, supporting economic growth above 7%. A mini-trade deal could involve tariff waivers for commitments on intellectual property or reduced Russian oil imports.

Outlook: Balancing Trade and Geopolitics

The negotiations’ outcome will shape India’s export competitiveness and bilateral ties. A deal could stabilize trade, while failure risks supply chain disruptions amid U.S.-China tensions. With global risks like potential oil price spikes looming, constructive dialogue is critical for India’s economic resilience and the Indo-U.S. strategic partnership.