Bharat Makes Preemptive Trade Moves In Budget; US Stands To Benefit In Bilateral Trade Relations

Last week, the US initiated a confrontation over tariffs, led by President Donald J. Trump, imposing tariffs ranging from 10 per cent to 25 per cent on imports from China, Canada, and Mexico—countries he referred to as "major threats." However, Bharat escaped the tariff salvo despite Trump having previously called India a "tremendous tariff-maker," alongside China and Brazil.

So, why did Bharat escape Trump’s tariff rage?

Last week, Prime Minister Narender Modi and Trump engaged in a telephone conversation where both leaders reportedly discussed "their shared commitment to global peace and stability." But, knowing Trump and his priorities, it is highly unlikely that he did not bring up trade and tariffs. If they were, did New Delhi assure a better deal than tariff changes? It seems, that may have happened.

Remember that if Trump is a businessman, Modi has business in his DNA. Both are nationalist leaders determined to make their respective countries great again.

Thus, it is safe to assume that the administrations of both countries, led by two hardcore leaders, could have secretly worked out a give-and-take deal. That's probably - why Trump did not drag India into his tariff war.

So, the next question is, what did Bharat offer in return?

The answer lies in the budget's fine print presented by Nirmala Sitharaman, India’s Finance Minister, on February 1, 2025. Reading between the lines of her speech brings forward key points that may have laid the foundation for the next round of bilateral trade between the world's two leading democracies. And, from the looks of it, the deal appears to be a win-win for both.

Budget changes outline five key areas where the US-Bharat bilateral trade can benefit:

1. Nuclear Energy Collaboration: In the Budget speech, the finance minister highlighted that "For an active partnership with the private sector towards this goal, amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act will be taken up."

Seema Sirohi is a Washington-based senior journalist who specialises in foreign policy. She had highlighted in her book "Friends with Benefits: The India-US Story," the complexities surrounding the India-US nuclear deal. Bharat's nuclear liability laws currently hold suppliers liable, instead of operators, in case of a nuclear incident. This law was a cause for concern among US companies. Thus, the proposed amendment of the Atomic Energy Act and the Civil Liability for Nuclear Damage Act in the budget will facilitate deeper nuclear collaboration between the two nations and attract US investments, thereby advancing India's nuclear energy capabilities.

2. Customs Duty Reductions: In the budget, there is a reduction in customs duty on chemicals and pharmaceuticals, and these two sectors are of special interest to states.

Chemical Industry: In 2022, the United States was among India's top sources of chemical imports, alongside China, Saudi Arabia, Japan, and Russia. Bharat's chemical industry is a significant component of its economy, "valued at approximately $220 billion and projected to grow to $300 billion by 2026."

Certain chemicals are not manufactured domestically in India and are imported to meet the country's growing demands. These include methylene diphenyl diisocyanate, cyclic hydrocarbons, acyclic alcohols, and acetic acid. These chemicals are critical in industrial manufacturing, petrochemicals, pharmaceuticals, and construction. The US firms such as Dow Chemical Company, DuPont, and LyondellBasell, which produce these specialised chemicals, are well-positioned to supply the Indian market.

Pharma Industry: In 2023, the United States "exported pharmaceutical products worth approximately $7.55 billion to India."

This figure underscores the strong trade relationship between the two nations in the pharmaceutical sector. Access to affordable life-saving medications is crucial for Bharat's healthcare system, especially for treatments that are not readily available or produced domestically. Similarly, duty exemptions on certain life-saving drugs and medicines might benefit U.S. pharmaceutical companies, especially those supplying high-value, life-saving medications.

3. FDI in Insurance: The finance minister also increased FDI in the insurance sector to 100 per cent for foreign companies investing their premiums in India. In the past, foreign insurers, especially from the US, had

raised concerns about the 74 per cent cap as it restricted ownership, capital constraints, and regulatory hurdles. MetLife, AIG, and Liberty Mutual operate in Bharat via joint ventures with Indian companies, where they offer life and general insurance products. While the new insurance reform will attract foreign investment, boost insurance penetration, and enhance India’s financial sector, it will potentially aid American insurance firms looking to expand their presence in the Indian market.

4. Shipbuilding and Maritime Development: Bharat will set up a $2.9-billion "maritime development fund for the long-term financing of the country's shipbuilding and repair industry" to become a world-class ship manufacturer. India's shipping fleet has not kept pace with its surge in trade, thereby losing precious foreign exchange in payments to foreign carriers.

The US has the needed maritime technology and equipment to modernise this sector. American companies like General Dynamics NASSCO, Huntington Ingalls, and Caterpillar stand to benefit by supplying shipbuilding expertise, equipment, and propulsion systems. Thus, the strengthened maritime infrastructure will enhance Indo-U.S. trade ties and create new investment opportunities for American firms in India's growing sector.

5. Security Enhancements: Collaborations in nuclear energy and maritime development can advance Bharat's defence and energy security, aligning with its broader security objectives, especially in the Indian Ocean region. These partnerships between Bharat and the US will strengthen economic ties while enhancing India's position on the global stage.

This does not mean New Delhi is offering US companies an easy advantage; they still need to compete to reap the benefits of the new budget reforms, especially in sectors like nuclear energy and shipping.

However, these budgetary measures reflect Bharat's commitment to creating a more investment-friendly environment, potentially appealing to US policymakers and businesses.

Geopolitics thrives when nations set aside conflicts and collaborate for mutual benefit. Successful diplomacy requires honest leadership and engagement on equal terms, fostering trust and long-term partnerships. However, in reality, power dynamics often influence negotiations.

While the ideal scenario is fair and transparent cooperation, geopolitical decisions are often shaped by national interests, historical tensions, and strategic advantages.

For now, geopolitical observers will likely wait for the in-person meeting between President Trump and Prime Minister Modi to gauge how both nations will take the next steps in their relationship.