Trump’s looming ‘Liberation Day’ tariffs push India towards historic US trade deal

The conclusion of a US-India trade deal will provide a template that could help Australia overcome obstacles blocking the expansion of its own free trade deal with New Delhi.

Donald Trump and Indian Prime Minister Narendra Modi arrive to hold a joint press conference at the White House. Picture: AFP

India is pushing hard to secure an interim bilateral trade deal with the Trump administration before a new round of sweeping global tariffs come into force next month, a move analysts say could help Australia finalise a key second tranche of its own free trade agreement with New Delhi.

The Modi government’s determination to avoid reciprocal US tariffs of up to 12 per cent on key exports, from gems and petroleum products to metals and pharmaceuticals, has seen three rounds of cabinet-level negotiations with Washington in recent weeks that have brought the two countries to the brink of a deal.

“They’re calling it a bilateral trade agreement and not an FTA because that would require congressional approval in the US,” Observer Research Foundation America executive director Dhruva Jaishankar told The Australian.

Negotiations would likely “go down to the wire” given the biggest remaining challenge, as with Australia, was finding agreement on agriculture – in India a politically important industry that has historically been shielded from more competitive, large-scale agricultural producers through tariffs and other measures.

“That’s going to be the hardest bit to overcome … but if you can get past this with the US it could help Australia because that second stage (of the Australia India trade deal) has been stuck on some agricultural issues and other items.

“Once the template with the US is in place then it would really help. There would be a lot of alignment with Australia.”

Last month the Albanese government launched a new roadmap for Australia’s economic engagement with India to maximise trade and investment opportunities between the two countries, that were continuing to make progress in negotiations towards an expanded free trade deal.

One way or another, some agreement would have to be reached by April 2 – even if it was to extend negotiations to avoid crippling tariffs that would trigger retaliatory measures and a “vicious spiral which no one wants”, added Mr Jaishankar, who is the son of Indian foreign minister Subrahmanyam Jaishankar.

In weekend comments, S. Jaishankar said New Delhi would continue to emphasise an “India First” approach in all ongoing trade negotiations but that it was also important to “weigh the price of action versus inaction”.

President Donald Trump has declared April 2 “Liberation Day”, marking the imposition of reciprocal imposts that seek to equalise US tariffs with the duties charged by trading partners.

India has so far managed to avoid the harsh trade punishment meted out to close US allies, Mexico, Canada and the European Union, but is squarely in the firing line – along with Brazil, Malaysia, Vietnam, Korea, Japan and Australia – for the next round of punitive measures given it has one of the highest tariff disparities with US goods globally.

Trump has repeatedly branded India the “tariff king” and an abuser of trade ties for its tariffs on US imports that not only shield India’s agricultural, automotive and electronics industries from competition but also represent a key revenue source. A significant reduction in that revenue could impact India’s fiscal stability.

Conversely, the imposition of equivalent tariffs on Indian goods into the US would smash the country’s $US75 billion export industry, potentially weaken stock markets and devalue the rupee.

But Trump told US media last week he was confident the South Asian giant was poised to slash tariffs on US imports.

New Delhi has long been criticised for trade protectionism, but its traditional resistance to free trade deals has been breaking down in the face of changing geopolitical circumstances; from the pandemic and border hostilities with China, to the Trump administration’s punitive trade measures.

Last week India and New Zealand launched formal free trade negotiations after a decade of circular talks, while Commerce Minister Piyush Goyal has also revived trade talks with the UK and EU.

On Monday he also spoke with Australia’s Trade Minister Don Farrell to try and progress talks towards an expanded free trade deal.

Ahead of Prime Minister Narendra Modi’s meeting with Trump in Washington last month, India unilaterally lowered tariffs on bourbon whiskey and Harley-Davidsons. The Indian leader also undertook to buy more US oil, gas and military equipment.

Successive Australian governments toiled for years to secure a free trade deal with India until the pandemic and tensions with China lent fresh urgency to talks towards an initial Economic Co-operation and Trade Agreement that was signed six months later in April 2022 – albeit excluding dairy.

The historic trade deal, which eliminated tariffs on more than 85 per cent of Australian exports to India and more than 90 per cent of Indian exports to Australia, was New Delhi’s first with a developed country in more than a decade.

Negotiations on upgrading that deal to a broader Comprehensive Economic Co-operation Agreement however have been stuck on differences over agriculture exports and greater visa access – obstacles that a US trade deal may provide a template for overcoming.