India-US trade deal: America has stopped short of Indian red lines

The interim trade framework announced by the United States and India on Saturday signals a key breakthrough in bilateral economic relations after nearly a year of protracted talks. It follows US President Donald Trump's recent public confirmation of a trade deal, formalizing agreements on tariffs, market access, and sectoral collaboration—though key details await future discussions. The US will reduce the “reciprocal” tariffs on Indian goods, lowering the effective rate to 18 percent. Even more notably, the extra 25 percent tariff—previously tied directly to India's Russian oil purchases—has been fully removed.

The US-India joint statement on the framework confirms that while the US gained limited access in select areas, it did not breach India's firm red lines on agriculture and dairy, the negotiation's toughest issues. Discussions will proceed toward a complete Bilateral Trade Agreement. Still, the inclusions and exclusions reveal much about each side's negotiating power.

Agriculture at the heart of the stalemate

Agriculture, food, and dairy proved the thorniest negotiation elements, stalling talks for almost a year. India held firm against easing its longstanding protections, especially for dairy and key crops, to safeguard farmer incomes, price stability, food security, health standards, and cultural priorities. The joint statement mirrors this steadfast position.

Although agriculture is referenced, India's concessions are tightly limited. It will cut or eliminate tariffs on certain US products like dried distillers’ grains (DDGs), red sorghum for feed, tree nuts, fresh and processed fruits, soybean oil, and wine and spirits. Notably, dairy is entirely absent from the list.

This exclusion stands out amid long US efforts to enter India's dairy market. It highlights America's acceptance of India's dairy red line, factoring in the sector's political weight and operational challenges.

Why India’s red lines remain intact

Examining the framework's product list reveals US gains in non-threatening categories for India's agriculture. Items like DDGs and red sorghum serve as animal feed, not human staples. Tree nuts and fruits are already major Indian imports.

Soybean oil follows suit: India sources most from Argentina, Brazil, and Russia, with minimal US volumes. Easing access for US supplies won't likely disrupt local markets much.

Overall, the deal strikes a balanced compromise. India adjusted tariffs where opposition is low, while the US avoided sectors that could spark domestic uproar and collapse the talks.

Existing trade flows put the deal in perspective

Trade statistics highlight the framework's agricultural scope. USDA data shows US farm and food exports to India hit $2.25 billion in 2024, led by tree nuts like almonds at $1.12 billion. Other key items: ethanol, cotton, pulses, essential oils, fresh fruit, and soybean oil.

India's farm and food exports to the US were far larger—around $6.2 billion in 2024—including seafood, spices, rice, and dairy. This surplus made India wary of further openings, as it has no need to jeopardize vulnerable sectors.

The DDGs question

Dried distillers’ grains (DDGs) may pose some domestic risks. A surge in US DDGs could pressure prices of local versions, which have grown with India's grain-based ethanol boom.

The ripple effects might hit soymeal too, already declining as DDGs substitute in feed. This burdens soybean farmers, with prices lingering below support levels—soybeans yield just 18 percent oil, leaving meal with softening demand.

Thus, even modest feed concessions merit scrutiny from local players, red lines notwithstanding.

Fruit imports and the apple factor

Details on fruit imports, especially apples—a top US export to India—remain pending. Covered under fresh and processed fruits, specifics on tariffs and volumes are unclear. Big increases could impact local producers, making execution as critical as the pledges.

A major sticking point is resolved

The framework indicates the US tempered its agriculture and dairy demands to clinch a wider pact. India yielded selectively, steering clear of high-stakes areas. No dairy access, emphasis on feeds and familiar imports, and sustained surplus all show the US respected India's boundaries.

Yet as full Bilateral Trade Agreement talks advance, these sectors stay under spotlight. For now, India has shielded much of its farm market while signaling willingness to collaborate on its terms.