India-US trade talks go off rails on row over farm markets

President Donald Trump said on Wednesday the United States would impose a 25% tariff on Indian goods starting August 1, citing New Delhi’s high tariffs and strict non-monetary trade barriers.

Following are the key issues that appear to have derailed the trade talks between the U.S., the world's largest economy, and India, its fifth largest:

CONTENTIOUS ISSUES

India has resisted U.S. demands to open its agricultural and dairy markets, saying such moves would hurt millions of poor farmers. New Delhi has historically excluded agriculture from free trade pacts to protect domestic livelihoods.

Tariff cuts on corn, soybean, wheat and ethanol remain off the table, with Indian officials citing risks from subsidised U.S. farm products. Domestic automakers, pharma firms and small industries have also lobbied for only a gradual opening, fearing disruption from U.S. imports.

HIGH TARIFFS

According to a White House fact sheet, India imposes an average MFN (Most Favoured Nation) tariff of 39% on imported farm goods, compared to 5% in the U.S., with some duties as high as 50%.

Trump’s administration has repeatedly flagged these tariffs as a key obstacle to deeper trade ties with India.

U.S. DEMANDS

Washington is pushing for better access to India’s markets for agriculture, ethanol, dairy, alcoholic beverages, autos, pharmaceuticals, and medical devices. It also wants India to reduce non-tariff barriers, and reform rules on patents, digital trade, and data flows.

LACK OF RECIPROCITY

Despite offering limited tariff cuts and boosting imports of U.S. energy and defence goods, India says it is still awaiting clear proposals from Washington. Officials cite Trump’s unpredictable trade moves as a concern.

Indian exporters remain uneasy over rising U.S. levies on imports: a 10% base tariff, up to 50% on steel and aluminium, 25% on autos, and now 25% across a broader range of goods.

TENSIONS OVER PAKISTAN

Trump’s repeated assertions that he helped broker a ceasefire between India and Pakistan earlier this year have raised concerns in New Delhi. Indian officials view the remarks as a strategic tilt toward Pakistan, complicating broader bilateral relations.

OVERCONFIDENCE IN A DEAL

Indian officials were initially confident of a deal, expecting the U.S. to favour deeper trade with one of its biggest commercial partners. Modi and Trump had aimed to sign a first-phase pact by autumn 2025, targeting bilateral trade of $500 billion by 2030, up from $191 billion in 2024.

Despite the tariff setback, India hopes its exports – including pharmaceuticals, electronics, engineering goods and garments – could remain competitive, especially with tariff advantages over China.

Indian goods exports to the U.S. rose to $87 billion in 2024, with gems and jewellery ($8.5 billion), pharma ($8 billion) and petrochemicals ($4 billion) leading the list. Services exports, mainly IT and professional services, were worth $33 billion.

The United States is India’s third-largest investor, with $68 billion in cumulative FDI since 2002.

US EXPORTS TO INDIA

U.S. manufacturing exports to India, valued at nearly $42 billion in 2024, face high tariffs, ranging from 7% on wood products and machinery to as much as 15% to 20% on footwear and transport equipment, and nearly 68% on food.