Updated January 21, 2022
U.S.-India Trade Relations
Trade and investment ties are a key aspect of U.S.-India
Top traded goods include mineral fuels, precious metals
bilateral relations. Market access and other trade barriers
and stones, machinery, aircraft, organic chemicals, and
with India are longstanding concerns among some
pharmaceutical products. In bilateral services trade, travel
Members of Congress, U.S. exporters, and successive U.S.
(for business and personal, including for education) was the
Administrations. Some business groups and analysts see
top U.S. export, and telecommunications, computer, and
potential for the two nations to enhance their trade ties, and
information services was the top U.S. import. Most major
to engage on global and regional trade issues of shared
U.S. companies are active in India. Top sectors for Indian
interest, if they can address existing bilateral trade barriers.
FDI in the United States are professional services,
During the Trump Administration, bilateral trade tensions
depositary institutions, and manufacturing. Additionally,
grew over tariffs and other policies. A trade deal to address
defense sales are significant in bilateral trade.
certain market access issues reportedly neared conclusion in
Figure 1. U.S. Trade and Investment with India
2020, but did not materialize. U.S.-India trade relations
appear to be less strained during the Biden Administration;
the two countries agreed to resolve outstanding bilateral
trade issues and explore ways to expand trade ties. In
November 2021, they convened a ministerial-level meeting
of the bilateral Trade Policy Forum (TPF), the first in four
years. In recent months, they also addressed issues related
to agricultural market access and India’s digital services tax
(DST). Yet frictions remain, including over the termination
of India’s eligibility for the U.S. Generalized System of
Preferences (GSP), and the sometimes diverging U.S. and
Indian views in the World Trade Organization (WTO).
India’s Economy
In 2020, India was the world’s third-largest economy by
purchasing power parity for gross domestic product. After
several years of high growth rates (above 7%), its economy
grew more slowly in 2019 (4%) and, for the first time in
four decades, contracted in 2020 (-7.3%). The Coronavirus
Disease 2019 (COVID-19) pandemic hit India’s economy
hard, shrinking incomes for millions in its middle class and
Source: CRS analysis, Bureau of Economic Analysis (BEA) data.
worsening poverty. The government’s COVID-19 response
Select U.S.-India Trade Issues
mitigated some adverse economic effects, but ongoing
India’s Tariff Regime. The United States has longstanding
COVID-19 concerns may dampen economic recovery in
concerns over India’s tariff regime, which has relatively
2022. Rising unemployment, inflationary pressures, and
weak infrastructure are ongoing economic challenges. The
high average tariff rates, especially in agriculture. India can
raise its applied rates to bound rates without violating its
Modi Administration has enacted some market-opening
commitments under the WTO, causing uncertainty for U.S.
reforms, while raising tariffs and pursuing other restrictive
trade measures. Some moves to boost domestic
exporters—as it did for certain telecommunications goods.
manufacturing and infrastructure (e.g., a “Make in India”
Steel and Aluminum Tariffs and Retaliatory Tariffs.
initiative and the “Self-reliant India” campaign) pose
India opposes the continued U.S. “Section 232” steel and
concerns to some U.S. firms about trade barriers with India.
aluminum tariffs, applied since 2018. India applied
Bilateral Trade and Investment Ties
retaliatory tariffs against the United States after losing its
GSP eligibility (see below); these higher tariffs of 10% to
Bilateral trade and investment ties are limited, but have
25% affect about $1.2 billion of U.S. exports (2020 data),
grown in the past decade (Figure 1). They are a small share
such as nuts, apples, chemicals, and steel. The two sides are
of U.S. international transactions and more consequential
challenging each other’s tariffs in the WTO.
for India. In 2020, total U.S.-India merchandise trade
(exports plus imports) accounted for about 2% of U.S.
Digital Services Tax (DST). In November 2021, the
merchandise trade, and about 12% of such trade for India.
United States announced a “political agreement” with India
India was the United States’ 11th-largest overall goods
on its DST treatment. In exchange for India’s commitment
trading partner; and the United States was India’s largest
to transition from its DST to a newly-concluded, related
merchandise export destination and third-largest
global tax framework, the United States agreed to terminate
merchandise import supplier (after China and the European
additional, already suspended duties on certain goods from
Union). (U.S. Census Bureau and WTO data, 2020.)
India. The duties arose from a U.S. “Section 301”
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U.S.-India Trade Relations
investigation, prompted by concerns that India’s DST was
Defense Trade. The two nations have signed defense
unfair to U.S. firms. Following the investigation, the United
contracts worth more than $20 billion since 2008. India is
States adopted, then immediately suspended, the duties,
eager for more technology-sharing and co-production
given the global tax negotiations. Countries would need to
initiatives, while the United States urges more reforms in
take domestic steps to implement the global tax framework.
India’s defense offsets policy and higher FDI caps in its
U.S. Generalized System of Preferences (GSP). In 2019,
defense sector.
the United States removed India from GSP, a U.S. trade and
Bilateral Engagement. Many analysts see the TPF as a key
development program, due to market access issues.
forum to enhance bilateral trade ties, but some question
Termination of eligibility reinstated U.S. tariffs for goods
whether the two nations can keep momentum to continue to
from India that previously entered duty-free. India, which
address specific issues. Some also question whether the two
was GSP’s largest user, seeks to regain eligibility. Congress
sides may revisit past efforts to pursue a bilateral trade
may consider India’s potential reinstatement alongside
liberalization agreement or investment treaty. Bilateral
broader eligibility criteria issues in any legislative debate on
trade talks between India and such major economies as the
the renewal of GSP, which expired on December 31, 2020.
EU and the United Kingdom may affect these dynamics.
Services. The two nations are competitive in some services
Regional Integration. For each nation, the other represents
industries. Barriers to U.S. firms’ market access include
a key partner in advancing strategic economic interests in
India’s limits on foreign ownership and local presence
the Indo-Pacific, including to enhance competitiveness and
requirements. A key issue for India is U.S. temporary visa
counter China. The United States and India are each absent
policies, which affect Indian nationals working in the
from the major regional trade agreement that they helped to
United States. India continues to seek a “totalization
negotiate: respectively, the Comprehensive and Progressive
agreement” to coordinate social security protection for
Agreement for Trans-Pacific Partnership (CPTPP) and the
workers who split their careers between the two countries.
Regional Comprehensive Economic Partnership (RCEP).
Agriculture. Sanitary and phytosanitary (SPS) barriers in
China is an RCEP member and seeks to join CPTPP. It
India limit U.S. agricultural exports. The United States
remains to be seen whether the United States and India may
questions the scientific and risk-based justifications of such
revisit their positions on these agreements and/or pursue
barriers. Each side also sees the other’s agricultural support
other regional integration. India has previously expressed
programs as market-distorting; India’s view of its programs
interest in joining the Asia-Pacific Economic Cooperation
from a broad food security lens complicates matters. At the
(APEC) group, comprised of the United States, China, and
TPF, the two sides agreed to work to finalize market access
19 other members, but questions remain about India’s
for a number of products, including for Indian mango
willingness to undertake economic reforms to join.
exports to the United States and U.S. pork exports to India.
World Trade Organization (WTO). The two nations
engage in WTO trade liberalization negotiations and, at
Intellectual Property (IP). The two sides differ on how to
times, use the WTO to enforce trade rules and settle trade
protect IP to support innovation and other policy goals,
disputes against each other. India’s growing integration in
such as access to medicines. Some stakeholders welcomed
the global economy has prompted some U.S. policymakers
moves by India to its IPR regime, but they have been
to call on India, like China, to be a more responsible
disappointed by the pace of reform. India remained on the
stakeholder in the rules-based global trading system. They
Priority Watch List of the U.S. 2021 “Special 301” report,
blame India for impeding progress on certain WTO issues.
which cited such U.S. concerns as India’s patent treatment,
The United States and some developed countries also are
high IP theft rates, and lax trade secret protection.
critical of India, China, and others for self-designating as
“Forced” Localization. The United States continues to
developing countries to claim special and differential
press India to address its “forced” localization practices,
treatment under WTO rules—a view these countries refute.
such as in-country data storage, domestic content, and
In 2021, the Biden Administration voiced support for the
domestic testing requirements. Adding to U.S. concerns are
India’s
concept of a waiver of certain WTO IPR obligations for
restrictive localization rules for certain financial
COVID-19 vaccines. India and some other countries seek a
payment data flows. At the same time, India has moved to
broader WTO IPR waiver for COVID-19-related health
ease some local sourcing rules for single-brand retailers.
products and technologies. Differences remain on other
Investment. India has made some FDI reforms, such as
WTO issues under negotiation, e.g., e-commerce customs
raising foreign equity caps for insurance and launching a
duties and fisheries subsidies. Discussions are ongoing,
new system to streamline FDI approvals. U.S. concerns
after the WTO postponed its next ministerial conference
about investment barriers persist, due to India’s restrictive
from the end of 2021, due to COVID-19 concerns.
rules for e-commerce platforms and other issues affecting
the investment climate, such as India’s regulatory
Selected Potential Issues for Congress
transparency, IPR protection, and localization policies.
What is the status of U.S. market access to India? To
Supply Chains. India’s role in supporting secure supply
what extent is India adopting more restrictive policies?
chains for critical sectors, including for pharmaceuticals,
What trade issues should the United States and India
has been of growing policy interest in the wake of supply
prioritize in any future talks and through what avenues?
chain vulnerabilities exposed by COVID-19 and rising
What opportunities and challenges exist for bilateral
U.S.-China and India-China trade frictions. India also has
engagement on regional and global trade issues?
stepped up efforts to attract supply chains from China. U.S.-
Shayerah I. Akhtar, Specialist in International Trade and
India engagement on these issues may increase.
Finance
https://crsreports.congress.gov
U.S.-India Trade Relations
IF10384
K. Alan Kronstadt, Specialist in South Asian Affairs
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https://crsreports.congress.gov | IF10384 · VERSION 16 · UPDATED