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Updated December 23, 2020
U.S.-India Trade Relations
Background
Indian government to press ahead with its reform agenda
The United States and India view one another as important
with greater vigor, although the project is mostly on hold
strategic partners to advance common interests regionally is
due to a pandemic-related recession.
considered to be a key aspect of strategic ties with potential
After several years with the world’s fastest economic
for more growth.
growth rate (above 7%), India grew more slowly in 2019,
Bilateral trade is about 3% of U.S. world trade (Figure 1).
and was hit hard economically by Coronavirus Disease
It is more consequential for India; in 2019, the United
2019 (COVID-19). The Reserve Bank of India revised
States was India’s largest goods export market (17% share),
upward its estimate for India’s growth rate from -9.5% to -
and third-largest goods import supplier (7%), after China
7.5% for 2020/2021, subject, in part, to future COVID-19
(14%) and the European Union (9%). U.S.-India foreign
responses. Amid the COVID-19 pandemic, India has
direct investment (FDI) is limited, but growing. Defense
stepped up efforts to attract supply chains from China, with
sales also are significant in bilateral trade. Civilian nuclear
some encouragement from the Trump Administration.
commerce, stalled for years over differences on liability
Selected Issues
protections, has produced major potential U.S. supply
contracts, dating to the second Obama Administration.
Tariffs. Under the Trump Administration, bilateral tensions
increased over each side’s tariff policies. In general, India
Figure 1. U.S. Trade and Investment with India
has relatively high average tariff rates, especially in
agriculture. It can raise its applied rates to bound rates
without violating its commitments under the WTO, causing
uncertainty for U.S. exporters. India’s recent tariff hikes,
including on cell phones and other telecommunication
goods, went from 0% originally to 15-20%. The United
States and several other countries requested to join various
WTO dispute consultations against India related to its
technology tariffs, also questioning its compliance with the
WTO Information Technology Agreement (ITA).
India opposes the 25% steel and 10% aluminum national-
security-based “Section 232” tariffs that the Trump
Administration imposed in 2018. India repeatedly delayed
applying planned retaliatory tariffs against the United
States, in hopes of resolving the issues bilaterally. After
India lost its eligibility for a U.S. trade preference program
(see below), India imposed higher tariffs of 10% to 25%,
affecting about $1.32 billion of U.S. exports (2019 data),
Source: CRS analysis, Bureau of Economic Analysis (BEA) data.
such as nuts, apples, chemicals, and steel. The two sides are
challenging each other’s tariffs in the WTO.
Market access and other barriers to trade with India have
U.S. Generalized System of Preferences (GSP). Effective
been longstanding concerns among some Members of
June 2019, President Donald Trump removed India from
Congress and U.S. exporters, and successive U.S.
GSP, a U.S. trade and development program, for failure to
Administrations. Efforts under the Trump Administration to
provide “equitable and reasonable” market access. GSP
reach a limited bilateral trade deal to address certain
provides nonreciprocal, duty-free tariff treatment to certain
frictions did not conclude. President-Elect Joe Biden has
products imported from qualifying developing countries.
expressed interest in cooperating with Indian Prime
The termination followed an U.S. investigation into India’s
Minister Narendra Modi on global challenges, but it is
market access practices based on petitions by U.S. dairy
uncertain what priority the new Administration will place
and medical technology industries. In 2018, India was the
on bilateral trade issues. Some analysts expect that U.S.-
largest beneficiary of GSP; over one-tenth ($6.3 billion) of
India trade relations may be less strained, but that Congress
U.S. goods imports from India entered duty-free under the
and the new Administration will continue to seek resolution
program (e.g., chemicals, auto parts, and tableware). GSP
to ongoing trade frictions in the bilateral relationship.
removal reinstated U.S. tariffs, which ranged 1-7% on the
Prime Minister Modi’s first term (2014-2019) fell short of
top 15 GSP bilateral imports.
many observers’ expectations, as India did not move
forward with many anticipated market-opening reforms,
Services. The United States and India are competitive in
and instead increased tariffs and trade restrictions. Modi’s
certain services industries. Barriers to U.S. firms’ market
strong re-electoral mandate in May 2019 may embolden the
access include India’s limits on foreign ownership and local
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U.S.-India Trade Relations
presence requirements. A key issue for India is U.S.
address trade frictions. A potential trade deal could include
temporary visa policies, which affect Indian nationals
partial restoration by the United States of India’s GSP
working in the United States. India was monitoring
benefits in exchange for certain market access
potential U.S. action to revise the H-1B (specialized
commitments, according to press accounts. Yet, the long-
worker) visa program under the Trump Administration.
expected limited trade deal has not materialized to date.
Additionally, India continues to seek a “totalization
agreement” to coordinate social security protection
Negotiations under prior Administrations on a bilateral
for
investment treaty (BIT) are stalled due to differences on
workers who split their careers between the two countries.
approaches on investor protections. The government-to-
Agriculture. Sanitary and phytosanitary (SPS) barriers in
government Trade Policy Forum has not met regularly in
India limit U.S. agricultural exports. The United States
recent years amid trade frictions. The private sector-based
questions the scientific and risk-based justifications of such
CEO Forum has met periodically.
barriers. Each side also sees the other’s agricultural support
Regional Integration. Both India and the United States are
programs as market-distorting; India’s view of its programs
absent from the Indo-Pacific region’s two major trade pacts.
from a broad food security lens complicates matters.
India negotiated, but opted not to join, the Regional
Intellectual Property (IP). The two sides differ on how to
Comprehensive Economic Partnership (RCEP), signed
balance IP protection to incentivize innovation and support
by China and 14 other countries in November 2020.
other policy goals, such as access to medicines, including
India cited concerns about RCEP’s fairness and balance,
for COVID-19 treatments and vaccines. India remained on
and reportedly also was concerned about the effects of
the Priority Watch List of the U.S. 2020 Special 301 report,
opening its markets to Chinese exports.
which cited India’s insufficient progress in addressing IP
The United States withdrew from the proposed Trans-
challenges and noted concerns over India’s treatment of
Pacific Partnership (TPP) in 2017. The 11 remaining
patents, high IP theft rates, and lax trade secret protection.
TPP parties (including 7 RCEP members, but not India
“Forced” Localization. The United States continues to
or China) signed the new Comprehensive and
press India to address its “forced” localization practices,
Progressive Agreement for TPP (CPTPP or TPP-11),
such as in-country data storage, domestic content, and
which entered into force on December 2018.
domestic testing requirements—viewed by the United
India also has long sought to join the Asia-Pacific
States as presenting barriers to trade with India. Adding to
U.S. concerns are India’s
Economic Cooperation (APEC), composed of the United
restrictive localization rules for
States, China, and 19 other economies, but its willingness to
certain financial data flows, which affect companies such as
make sufficient economic reforms to join is uncertain.
Visa and MasterCard. At the same time, India has moved to
ease some local sourcing rules for single-brand retailers,
WTO. The United States and India often have opposing
which would affect companies such as Apple.
stances in the WTO, whose future direction is unclear amid
debate over institutional reforms and negotiations. With
Investment. India aims to attract foreign investment and
India’s growing integration in the global economy, some
has made FDI reforms, such as raising foreign equity caps
for insurance and defense, and other strides to improve its
policymakers have called on India, like China, to be a more
responsible stakeholder in the rules-based global trading
business environment. U.S. concerns about investment
barriers persist nevertheless, heightened by new Indian
system. They blame India for impeding WTO progress on
restrictions on how e-commerce platforms such as Amazon
issues such as e-commerce customs duties and fisheries
subsidies. India previously blocked the Trade Facilitation
and Walmart-owned Flipkart conduct business. From the
U.S. view, India’s weak regulatory transparency and other
Agreement (TFA), which ultimately entered into force in
issues, such as IPR and localization policies, add to
2017, until a compromise was reached on treatment of
certain food security programs. The United States and some
concerns about FDI barriers. Two-way U.S.-Indian FDI is
linked to U.S. jobs and exports in a range of sectors, yet
developed countries also are critical of India, China, and
U.S. FDI in India prompts some offshoring concerns.
others for self-designating as developing countries to claim
special and differential treatment under WTO rules—
Defense Trade. The two nations have signed defense
criticisms that these countries refute.
contracts worth more than $20 billion since 2008, up from
$500 million in all previous years combined. Major
Selected Potential Issues for Congress
anticipated deals include an Integrated Air Defense Weapon
What aspects of bilateral trade relations would change
System valued at nearly $2 billion and 30 MQ-9B
or remain the same in a Biden Administration?
SkyGuardian drones worth more than $3 billion. India is
What trade issues should the United States and India
eager for more technology-sharing and co-production
prioritize in any future talks? Is there potential for
initiatives, while the United States urges more reforms in
broader trade agreement negotiations?
India’s defense offsets policy and higher FDI caps in its
defense sector. India’s multibillion
Will India and the United States renegotiate re-entry
-dollar deal to purchase
into RCEP and CPTPP, respectively, or potentially seek
the Russian-made S-400 air defense system may trigger
U.S. sanctions on India under the Countering America’s
other ways to engage on regional issues?
Adversaries Through Sanctions Act (P.L. 115-44).
Are there opportunities for the United States and India
to bridge differences on multilateral trade issues?
Current Negotiations and Agreements
Shayerah I. Akhtar, Specialist in International Trade and
Bilateral Engagement. Under the Trump Administration,
Finance
the United States and India held concerted negotiations to
https://crsreports.congress.gov
U.S.-India Trade Relations
IF10384
K. Alan Kronstadt, Specialist in South Asian Affairs
Disclaimer
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https://crsreports.congress.gov | IF10384 · VERSION 14 · UPDATED