U.S.-India Trade Relations

U.S.-India Trade Relations

Updated March 31, 2023
U.S.-India Trade Relations
Trade and investment ties are a key aspect of U.S.-India
petroleum gases, basic chemicals, waste and scrap, and
relations. Market access and other trade barriers with India
aerospace products and parts. Top U.S. goods imports from
are longstanding U.S. trade policy concerns. Some business
India included miscellaneous manufactured commodities,
groups and analysts see potential for the United States and
pharmaceuticals and medicines, apparel, basic chemicals,
India to enhance trade ties and engage on global and
textile furnishings, and petroleum and coal products. For
regional trade issues, if they can address bilateral trade
services, travel was the top U.S. export to India, and various
barriers. During the Trump Administration, bilateral
business services were the top U.S. import from India.
tensions grew over tariffs and other policies. A trade deal to
Defense sales also are significant in bilateral trade. A range
address some market access issues reportedly neared
of U.S. firms operate in India, across sectors. FDI from
conclusion in 2020, but did not materialize. During the
India in the United States is concentrated in the IT services,
Biden Administration, the two nations have agreed to
software, business services, pharmaceuticals, and industrial
resolve certain bilateral trade issues and explore ways to
equipment sectors.
expand trade ties. They revived their bilateral Trade Policy
Figure 1. U.S. Trade and Investment with India
Forum (TPF)—the 2021 TPF ministerial was the first held
in four years. India also is a part of the Indo-Pacific
Economic Framework for Prosperity (IPEF), an ongoing
U.S.-led trade and economic initiative in the region.
Bilateral frictions remain, including over tariffs, U.S.
termination of India’s eligibility for the U.S. Generalized
System of Preferences (GSP), and sometimes diverging
U.S. and Indian views in the World Trade Organization
(WTO). The 118th Congress may oversee U.S.-India trade
relations and seek to shape U.S. trade policy on India.
India’s Economy
India’s economy was the world’s fifth-largest in 2022
(nominal gross domestic product, GDP). It is projected to
grow by 6.1% in 2023. India is touting its 2023 presidency

of the G20 as a reflection of its economic rise. Services,
Source: CRS analysis, Bureau of Economic Analysis (BEA) data.
especially information technology (IT), are a key part of the
Note: Not inflation adjusted; 2021 latest available year for FDI data.
economy. Agriculture is the top jobs provider, but its share
Select U.S.-India Trade Issues
of India’s GDP is declining. India’s economy has a sizeable
Tariffs. The United States has longstanding concerns over
middle class, but faces challenges regarding unemployment,
India’s tariff rates, deeming them the highest of any major
poverty, and infrastructure. Prime Minister Narendra
economy. India can raise its applied rates to bound rates
Modi’s government has enacted some market-opening
without violating WTO commitments, causing uncertainty
reforms and sought to attract foreign direct investment
for U.S. exporters.
(FDI), including aiming to position India as an alternative
India opposes U.S. “Section 232” tariffs on steel and
for foreign firms seeking to diversify supply chains beyond
China. Yet under Modi, India has adopted trade-restrictive
aluminum (an additional 25% and 10%, respectively),
initially applied in 2018. After losing its GSP eligibility
measures (e.g., tariff hikes) to promote “self-reliance” and
(see below), India applied retaliatory tariffs of an additional
boost domestic manufacturing—leading to questions about
the direction of India’s economic reform. In early 2023, a
10% to 25% affecting about $1.3 billion of U.S. exports
(2022 data), including nuts, apples, chemicals, and steel.
financial research firm accused Indian conglomerate Adani
The two sides have challenged these tariffs in the WTO.
Group of decades of accounting fraud, which it denies. The
scandal may affect India’s global standing; some observers
The United States rejected 2022 WTO dispute panel reports
that held that its Section 232 measures violated WTO rules.
see Adani Group as closely linked to Modi.
Previously, the United States reached less restrictive
U.S. Trade and Investment with India
arrangements on steel and aluminum with the European
Bilateral trade ties are limited, but have generally grown in
Union (EU) and some other trading partners, but not India.
the past decade (Figure 1). They are a small share of U.S.
Digital Trade. In 2021, the two nations reached a “political
trade and more consequential for India. For example, by
agreement” on treatment of India’s digital services tax
country, for goods exports, India was the United States’
(DST), viewed by the U.S. government as discriminatory
10th-largest market (2.3% share), and the United States was
against U.S. firms under “Section 301.” In exchange for
India’s largest market (a share of nearly one-fifth). In 2022,
India’s commitment to transition from its DST to the
top U.S. goods exports to India included oil and gas,
OECD/G20 global tax framework concluded in 2021, the
miscellaneous manufactured commodities, coal and
United States terminated Section 301 tariffs against India
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U.S.-India Trade Relations
(tariffs already suspended by the United States during the
resiliency (e.g., in IPEF) and, in particular, semiconductor
global tax talks). In the WTO, India initially opposed
supply chains. India also seeks to partner with the United
extending a moratorium on e-commerce duties, voicing
States to develop a secure pharmaceutical base; India is
concerns about developing country impacts; at the June
major manufacturer and global supplier of generic drugs.
2022 ministerial, WTO members ultimately decided to
Defense Trade. The two nations have signed defense
extend the moratorium and intensify e-commerce
contracts worth more than $20 billion since 2008. India is
discussions. Per the United States, the WTO decision will
eager for more technology-sharing and co-production
reduce trade costs, expand opportunities for small and
initiatives, while the United States urges more reforms in
medium businesses, and support supply chain resilience
India’s defense offsets policy and higher FDI caps in its
across sectors that rely on information flows. Other related
defense sector.
issues of U.S. concern include India’s data localization
rules and their impacts on cross-border data flows.
Bilateral Engagement. The TPF’s revival may be a key
way for the two nations to enhance bilateral trade ties, but
GSP. In 2019, the United States removed India from GSP,
an open question is whether they can address specific
for failure to meet market access eligibility criteria. India,
issues. Some stakeholders have called for the partners to
which seeks reinstatement in GSP, was the largest
revisit past bilateral efforts to pursue an investment treaty
beneficiary of GSP’s duty-free treatment for qualifying
or pursue broader trade liberalization.
goods (e.g., basic chemicals, motor vehicle parts). At the
January 2023 TPF, the United States stated reinstatement
The United States has emphasized bilateral cooperation in
“could be considered, as warranted, in relation to the
other areas as well. In January 2023, the two nations
eligibility criteria” that Congress may determine in
formally launched a bilateral initiative on Critical and
considering whether to renew GSP, which expired in 2020.
Emerging Technology (iCET) to enhance cooperation on
defense production, quantum computing, semiconductor
Services. The two nations are competitive in some services
supply chains, space, and other high-tech fields.
industries, including IT and professional and business
services. Barriers to U.S. firms’ market access include
Regional Trade. The United States and India view
India’s limits on foreign ownership and local presence
themselves to be key Indo-Pacific partners, including to
requirements. A key issue for India is U.S. temporary visa
enhance competitiveness and counter China’s economic
policies, which affect Indian nationals working in the
influence. India is among the 14 countries in the four-pillar
United States. India continues to seek a “totalization
IPEF, the Biden Administration’s first major trade and
agreement” to coordinate social security protection for
economic initiative in the region. Notably, India was the
workers who split their careers between the two countries.
only country to opt out of IPEF’s trade pillar, questioning
its prospective commitments on areas such as environment
Agriculture. U.S. bilateral concerns include sanitary and
and labor. The scope and effectiveness of the trade pillar,
phytosanitary (SPS) barriers in India that may limit U.S.
which currently excludes tariff reduction, also is of broader
agricultural exports. The United States questions the
policy debate among some stakeholders. India has joined
scientific and risk-based justifications of such barriers.
IPEF’s other pillars (supply chains, clean energy,
Further, each sees the other’s agricultural support programs
infrastructure and decarbonization, and tax and anti-
as market-distorting; India’s view of its programs from a
corruption). IPEF outcomes may be forthcoming in 2023.
broad, food-security lens complicates matters.
WTO. The two nations engage in WTO negotiations and
In 2022, the two nations made some market-opening
use the WTO to enforce trade rules and settle disputes.
commitments (e.g., for Indian mango exports, U.S. pork
India’s growing integration in the global economy has
exports). In February 2023, India announced plans to
prompted some U.S. policymakers to call on India, like
implement a 70% cut to tariffs for U.S. pecan exports; the
China, to be a more responsible stakeholder in the rules-
United States attributed India’s move to TPF progress.
based global trading system. They blame India for
Agricultural market access remains a bilateral trade issue.
impeding progress on certain WTO issues (e.g., on e-
Intellectual Property Rights (IPR). The nations differ on
commerce customs duties moratorium and fisheries
how to protect IPR to support innovation and other goals
subsidies disciplines). Ongoing issues include whether to
(e.g., access to medicines). In 2022, India remained on the
expand an IPR waiver for COVID-19 vaccines, which
U.S. “Special 301” Priority Watch List, with India’s patent
WTO members adopted in 2022, to apply to diagnostics and
treatment, especially for agriculture, biotechnology, and
treatments. India, an early proponent of a COVID-19 IPR
pharmaceutical products; IP theft rates; and trade secret
waiver, supports an expansion. The United States, which
protection among U.S. concerns over India’s IPR regime.
supported the original waiver, has not taken a public
position on the expansion. Congressional views are mixed.
Investment. India has made some FDI reforms (e.g.,
raising foreign equity caps for insurance and streamlining
Selected Potential Issues for Congress
FDI approvals). U.S. concerns about India’s investment
 To what extent is India adopting more trade-restrictive
climate persist, including regarding India’s data
policies? What is the impact on U.S. market access, and
localization, tariff, SPS, and IPR policies and regulatory
what are policy options to respond?
transparency.
 What issues should Congress prioritize in U.S.-India
Supply Chains. India’s potential expanded role in
trade talks? What is the outlook for U.S.-India
supporting secure supply chains for critical sectors has
cooperation on regional and global trade issues?
come to the fore in light of supply chain vulnerabilities
exposed by COVID-19 and U.S.-China trade frictions. The
Shayerah I. Akhtar, Specialist in International Trade and
United States and India aim to cooperate on supply chain
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 17 · UPDATED