India remains uncertain about what tariffs competitors like Vietnam, Bangladesh, Indonesia, or Cambodia will face, which determines how good its own deal is.

To clinch an early free trade deal with India amid the ongoing tariff turmoil, the US is likely to press New Delhi to accept a tariff package that locks in import levies on Indian goods around 18 per cent, as agreed in the February framework deal. This will be backed with an assurance that more penalties won’t be added after the ongoing Section 301 investigations against India conclude, sources said.

The high-level US trade team visiting India on June 1-4 to push negotiations to conclude the interim trade deal may also throw in a sweetener guaranteeing further tariff reductions in the future aligned with the reduction in America’s trade deficit with India, a source told businessline.

Tariff Lock-In

“The US is keen to close the deal very soon, but it may take a while for its domestic tariff situation to settle down. That is why negotiators are likely to lock in a tariff rate around the 18 per cent level agreed in February. This means additional penalties will not be imposed even if the Section 301 investigations result in an adverse verdict for India in the coming months,” the source explained.

However, India remains uncertain about what tariffs competitors like Vietnam, Bangladesh, Indonesia, or Cambodia will face, which determines how good its own deal is.

“Commerce Minister Piyush Goyal has stated that while India looks forward to sealing a bilateral pact, its primary objective remains securing a competitive advantage over other economies. If India agrees to a tariff level now, it needs to be sure it fares better than others,” a second source said.

While this interim deal will focus mainly on tariffs and non-tariff barriers, the pact will subsequently expand to include elements like intellectual property, government procurement, investment protection, data flows, and customs and trade facilitation.

Under the February 2 framework, the US offered to lower reciprocal tariffs to 18 per cent from 25 per cent and remove the 25 per cent penalty for buying Russian oil, over and above normal MFN tariffs. In return, India agreed to significantly reduce tariffs on US industrial and agricultural products. The US removed the oil tariffs, but reciprocal tariffs remained.

However, a landmark February 20 US Supreme Court judgment invalidated those reciprocal tariffs, leaving most countries facing a temporary 10 per cent global tariff above regular MFN rates.

The US counterargument to India’s caution is that its competitors also face Section 301 investigations. “Every country realises Section 301 penalties could be huge. It will suit competitors to implement older trade deals clinched before the reciprocal tariffs were invalidated. The US is starting talks with many of them,” the first source said.

India’s trade surplus with the US declined in FY26 to $34.41 billion from $40.88 billion in FY25 as imports of American goods increased. However, the US remained India’s largest export market in FY26 at $87.31 billion.

Published on May 31, 2026