Washington must clarify what it actually wants from New Delhi in order to secure a mutually beneficial trade agreement.

President Trump has imposed a 25 percent tariff on India, prompted by the failure to conclude a trade deal before the reciprocal tariff deadline of August 1. In a Truth Social post, he also alluded to penalties for economic engagement with Russia, though the nature of these measures remains unspecified. The newly imposed tariffs on India mirror the 26 percent as announced in the “Liberation Day” package. In response, the Indian government asserted that it “will take all necessary measures to secure the national interest.”

Since President Trump assumed office, trade has emerged as the most contentious issue in US-India relations. The two countries share a long-standing history of trade disputes, ranging from protectionism and industrial subsidies to food security. Though both nations had cultivated a strategic partnership by keeping these differences aside, recent weeks have brought them to the forefront once again.

President Trump has adopted pressure tactics against New Delhi following the recent India-Pakistan crisis. He claimed to have used trade as leverage to facilitate a ceasefire between the two countries—a statement that drew criticism from both Prime Minister Modi’s right-wing supporters and the opposition. Shortly after announcing the tariffs on India, he posted about finalizing a deal with Pakistan.

Setting aside the political drama, the deadlock between the United States and India over trade remains substantive. India is seeking lower tariffs on labor-intensive exports such as textiles, garments, and other merchandise, while the United States is pushing for greater market access in sectors like petrochemicals, electric vehicles, dairy, and agricultural products. The primary bottlenecks preventing both countries from signing a deal are persistent disagreements over the agriculture and dairy sectors.

Understanding India’s Red Lines on Trade: Agriculture and Dairy

India has long faced criticism for its high non-tariff barriers, often rooted in protectionist and bureaucratic policies inherited from its socialist past. While this observation holds some merit, it oversimplifies the country’s stance on agricultural and dairy sector access. These are India’s strongest red lines—not merely for economic reasons, but because of deep-rooted political and socio-cultural sensitivities.

Although agriculture contributes only about 16 percent to India’s GDP, it employs over 46 percent of the country’s workforce. In an economy where job creation remains a pressing challenge, any disruption in agriculture risks mass unemployment and political instability.

Agrarian unrest has historically been a powerful force for political mobilization in modern India. Two of the most iconic leaders of the freedom struggle, MK Gandhi and Vallabhbhai Patel, rose to national prominence by leading farmer protests. Post-independence, farmer leaders have continued to shape Indian politics, with Lal Bahadur Shastri and Charan Singh even becoming prime ministers. Countless state elections have turned on the single issue of minimum price guarantees for farm produce.

Even Prime Minister Modi, known for bold policy moves, was forced to repeal his 2020–21 agricultural reforms after sustained protests. This was not the first time he was forced to backtrack on his legislation. The Land Acquisition Bill, touted as the most dramatic reform in India, was also rolled back due to agrarian backlash. Simply put, pressuring India to open this sector is no different from flirting with political instability.

Moreover, the issue of genetically modified crops (GMOs) remains contentious, owing to serious concerns about environmental impact, public health, and seed patenting. Indigenous biodiversity faces erosion from monoculture farming, while soil and water systems risk contamination. It would threaten food crops such as millets and certain rice varieties endemic to India.

The resilience of GMOs to basic herbicides drives overuse of harsh chemicals. India adheres to the Cartagena Protocol and domestic bio-safety laws. American GMOs would also raise patent issues over seed ownership and farmers’ rights. In a country beset by pressure groups, giving up the ownership of seeds would immediately put any government in jeopardy.

The dairy sector in India accounts for around 5 percent of GDP. While the figure seems small, a closer look at its regional distribution reveals deeper political constraints. The top five dairy-producing states—Uttar Pradesh, Rajasthan, Gujarat, Madhya Pradesh, and Maharashtra—are also strongholds of the ruling Bharatiya Janata Party (BJP).

Three of them lie in the Hindi heartland, one is Modi’s home state (Gujarat), and the other (Maharashtra) is home to the Rashtriya Swayamsevak Sangh (RSS), the BJP’s ideological parent. Moreover, India’s traditional dairy farming communities like Yadavs, Jats, Reddys, and Vokkaligas form key voter bases for the opposition parties, making dairy protectionism a bipartisan issue.

Furthermore, American dairy production methods raise serious religious concerns in India. Several reports indicate that cows in the United States are often fed animal byproducts, including blood and meat. These practices are offensive to religious sentiments. In India, dairy is not merely a commodity, and the cow is far more than just an animal. Dairy products are integral to religious rituals and ceremonies, and the cow is sacred.

Contrary to common misperceptions in the West, these sentiments are not confined to the Hindi heartland; they are deeply embedded across regions. This was evident in a recent controversy involving adulterated animal fat used in sweets prepared at a prominent shrine in southern India, which sparked widespread outrage. The issue touches not only on food safety but also on cultural sanctity.

Thus, any disruption in the dairy sector also carries significant political risk. To put it bluntly, expecting Prime Minister Modi to open India’s dairy sector is like asking Xi Jinping to dismantle his New Zhejiang Army for a trade deal.

A Big, Beautiful Balance of Trade?

Much of the public discourse around the India-US trade relationship has focused on the $40 billion trade surplus that India enjoys in goods. But once services are factored in, the picture begins to look very different. Some estimates suggest the United States may even be running a surplus worth $35–40 billion when both goods and services are accounted for. Silicon Valley benefits enormously from unprecedented access to Indian markets in areas like app stores, digital platforms, and data services. Moreover, emerging Indian exports—particularly in electronics—have been exempted from recent US tariffs.

While Chinese digital services have been systematically pushed out of India on grounds of national security, American companies have operated with a free hand. Effectively, US technology firms have exploited geopolitical shifts to secure footholds in India’s consumer markets. The second-order effect of India’s middle-class aspirations is seen in capital outflows to the United States in sectors like higher education ($13 billion), streaming platforms, Hollywood films, and fast-food chains. The narrative that India is exploiting the United States collapses when capital inflows from services, soft power, and people-to-people linkages are accounted for.

The current US approach to trade appears rooted in a twentieth-century logic, focused on manufacturing, goods, and tariffs. This may make sense for US-China trade, where manufactured goods dominate the relationship. But with a service-dominated Indian economy, such a framework needs significant tweaks.

What Does the United States Want with India?

Before proposing solutions, it is crucial to ask: what exactly does America want from these trade negotiations? If the goal is to open up Indian markets to US industry, the conversation must center around regulatory frameworks in sectors where there is real potential and appetite for foreign participation. If the goal is to balance the trade deficit in goods, then the approach needs to be transactional to balance the numbers. And if the concerns extend to strategic anxieties—such as de-dollarization, BRICS expansion, or the emergence of alternative financial architectures—then the United States would need a broader geopolitical strategy, not a bilateral trade wrestling match.

In any case, attempts to penetrate India’s politically sensitive industries will do no good for either side. Talks about market access in the agriculture and dairy sectors are problematic, as even domestic reform efforts have led to significant pushback. Insisting on entry here will backfire and achieve little. Sectors like insurance, finance, energy, digital technologies, and defense offer far more promising terrain. India is gradually opening up these areas, though not without regulatory guardrails—especially in finance and insurance, where regulatory oversight and consumer protection remain key concerns. With a realistic understanding of India’s economic structure and political constraints, there is ample room for engagement.

A Potential Solution: Energy and Defense

Assuming that the real concern in Washington is the trade deficit in goods, the easiest solution lies in two domains: energy and defense. India’s demand for oil and natural gas is projected to grow steadily due to its consumption-driven economy, infrastructure expansion, and industrial push. The United States is well-positioned to meet this demand. A structured, long-term agreement to purchase approximately $30 billion worth of oil and LNG annually over the next decade—at a pre-negotiated price—could, on its own, recalibrate the trade imbalance. Such a phased and predictable arrangement would not only provide the United States with a steady export stream but also help India diversify away from overdependence on suppliers like Qatar.

Defense trade provides a parallel channel to offset the imbalance. However, one must stay away from flashy, unworkable mega-deals, like the F-35. It would suffer from tech transfer limitations, integration issues with India’s existing air fleet, and political baggage. Instead, the United States should consider offering off-the-shelf systems such as AWACs, heavy-lift helicopters, UAVs, and domain awareness radars that strengthen India’s capabilities without demanding a complete operational overhaul.

After Operation Sindoor, India is actively reforming its defense procurement. Thus, joint ventures, technology co-development, and the integration of American components into small Indian defense companiesrepresent logical next steps. To support this trajectory, the United States can fast-track bilateral defense negotiations by bringing India under the Reciprocal Defense Procurement (RDP). This would enhance coordination in procurement, paving the way for deeper interoperability and long-term strategic alignment.

US-India Relations: Back to Basics

The Department of Defense has been among India’s most reliable partners in the United States. Unlike some in the Beltway afflicted by Cold War neurosis or BRICS-phobia, the DoD understands the real puzzle: how to prevent the rise of a hegemon in Asia? Maintain stability in the Indo-Pacific. Protect sea lanes. Coordinate emerging technologies. Strengthen the Quad. For doing all of this, India is indispensable.

The United States and India have bigger things to accomplish together. Prime Minister Modi understands this. Even though the posturing from President Trump has grown louder, his response has remained calm and measured. At the end of the day, this is just a matter of negotiating a deal in the best interests of both sides.

There is a deal waiting to be made—but only if the United States can decide what it actually wants, and whether it can exorcise the Cold War ghosts from its psyche.