When Indian Prime Minister Narendra Modi met U.S. President Donald J. Trump at the White House on February 13, 2025, they announced the launch of a new initiative – the “U.S.-India COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century.” While the parties clearly signalled their desire to continue building out their defence and technology partnerships, they also recognised that Delhi had to address Washington’s concerns about India’s high trade tariffs and the persistent U.S. trade deficit with India to ensure the overall health of the bilateral relationship. It is therefore in the interests of both countries to reach an agreement soon on the first phase of a trade deal, perhaps on terms tilting toward U.S. demands now, but with possible adjustments down the road further addressing Indian concerns.
India’s response to change
Trump and Modi had developed a close relationship during the first Trump administration. Seeking to capitalise on this goodwill, Modi and his team have taken a forward-leaning approach in addressing trade issues with the new Trump administration, even beginning before the Inauguration. When External Affairs Minister S. Jaishankar travelled to Washington in late December 2024 for farewell meetings with senior members of the outgoing Biden administration, he also had an initial meeting with incoming National Security Advisor Michael Waltz to start a dialogue with the new administration. Jaishankar followed this with his attendance at the Trump Inauguration and a bilateral meeting with the new Secretary of State Marco Rubio.
The Indians sought an early visit to Washington by the Prime Minister to advance bilateral ties. Shortly before Modi’s mid-February 2025 trip to Washington, the government of India unveiled its 2025 Union Budget in late January, with elements seemingly designed to try to avoid the U.S. imposition of punitive trade tariffs. That Budget featured unilateral tariff cuts on several items important to America, such as high-end motorcycles, luxury cars, and some electronics and industrial goods, though in several cases the reductions still left tariffs relatively high.
Delhi may be reluctant to accept some US demands, seeking instead to negotiate what they view as a more balanced, multi-staged, and mutually beneficial deal. But the US regards the trade relationship as out of balance and it could be a perilous strategy for India to hold out for a deal it may not get and lose the momentum that flowed out of the Trump-Modi meeting. Instead, unlike most other countries, if India agrees now to the first phase of an agreement with what they view as less-than-ideal terms, they will likely get a second bite at the apple in the late fall when Trump is scheduled to visit Delhi for a Quad summit
At the Trump-Modi meeting on February 13, the Prime Minister announced a few additional tariff cuts – such as on bourbon whiskey – as the two leaders launched a new initiative – Mission 500. That initiative aimed to more than double bilateral trade in goods and services from $210 billion in 2024 to $500 billion by 2030. To reach this figure, they announced plans to negotiate the first tranche of a “mutually beneficial, multi-sector Bilateral Trade Agreement (BTA),” by the fall of 2025. They further agreed to implement “new, fair-trade terms” in the BTA.
