NEW DELHI: Trade talks between India and the United States are expected to resume next week after a pause triggered by Washington’s decision to impose an additional 25 per cent tariff on several categories of Indian exports.
The hike, which took the total tariff burden on many items to 50 per cent, was implemented in response to India’s continued import of discounted Russian crude oil – a move the US has labelled as “profiteering”.
According to sources familiar with the matter, India’s chief trade negotiator Rajesh Agarwal is slated to travel to Washington for a fresh round of trade talks with US officials. Both Prime Minister Narendra Modi and President Donald Trump are also expected to speak over the phone in the coming days to set the tone for the negotiations.
A source quoted in the US media described the situation as “fluid”, adding that no clear pathway has emerged yet regarding potential US tariff concessions. While both sides have publicly expressed commitment to dialogue, underlying frictions remain – particularly over India’s oil purchases and the Biden-era trade liberalisations that the Trump administration has sought to roll back.
The tariff escalation comes at a time of heightened tension on another front: outsourcing. A new bill introduced in the US Senate – the Halting International Relocation of Employment (HIRE) Act – threatens to levy a 25 per cent excise tax on payments by US companies to offshore service providers. If passed, the legislation could severely impact India’s $100-billion IT services export industry, which derives a significant share of its revenue from American clients.
India has yet to respond officially to the HIRE Act, but officials say New Delhi is “closely monitoring developments” and is likely to raise the issue in bilateral discussions.
Exports, surplus and sectoral exposure
India’s exports to the US touched approximately $86.5 billion in FY2025, making America India’s largest single export destination. In contrast, imports from the US stood at around $45.3 billion, yielding a trade surplus of more than $41 billion in India’s favour.
Of the total exports, nearly $48 billion worth – covering sectors like textiles, leather goods, gems and jewelry, footwear, and engineering products – are now potentially subject to the 50 per cent tariff.
These sectors, many of which are dominated by small and medium enterprises, are particularly vulnerable to a prolonged tariff regime.
Industry bodies estimate that the increased tariffs could cut into India’s exports to the US by as much as 43 per cent over the next year if left unaddressed.
According to a Goldman Sachs report, the drag on India’s GDP could range between 0.3 to 0.6 per centage points, depending on the elasticity of export demand and the success of trade diversification efforts.
Outsourcing crackdown: What’s in HIRE Act
The HIRE Act, introduced by Republican Senator Bernie Moreno, proposes far-reaching penalties on American companies outsourcing jobs or services. It aims to end tax deductibility of such transactions and impose a 25 per cent excise tax on them. Proceeds from this would flow into a “Domestic Workforce Fund” to support retraining programs for American workers.
Though still in the proposal stage, the bill has triggered anxiety in India’s services sector. Indian IT and BPO firms, which together employ over 4 million people, fear that clients may cut contracts or shift operations if the bill becomes law. US-based technology and consulting companies are also lobbying against the measure, arguing that it would raise operational costs and reduce competitiveness.
The road ahead
On the tariffs front, President Trump has relied on executive authority under existing trade and national security laws to impose new duties. This includes statutes like Section 301 of the Trade Act and the International Emergency Economic Powers Act.
These allow the President to act unilaterally, without needing Congressional approval, though such moves can be challenged in US courts or at the World Trade Organisation (WTO).
However, the outsourcing crackdown would require full legislative approval. For the HIRE Act or similar bills to become law, they must pass both chambers of Congress – the House of Representatives and the Senate – and then be signed by the President.
In the Senate, overcoming a potential filibuster would require at least 60 votes, making bipartisan support essential.
The Republican Party currently holds a narrow majority in the House and is competitive in the Senate, but internal divisions between business-friendly and populist wings of the party could complicate passage of such legislation.
Corporate lobbying against the outsourcing bill is expected to be intense, with tech giants and financial services firms likely to push for carve-outs or watered-down provisions.
Implications for India
If the current trade and outsourcing pressures persist, India’s export sector could face a significant downturn, particularly among labour-intensive industries and service providers. That could have knock-on effects on employment and GDP growth, especially in states with high export dependence.
At the same time, the developments may prompt Indian policymakers to accelerate diversification of export markets, invest in value-added manufacturing, and provide targeted relief to affected sectors.
The upcoming trade talks in Washington are therefore being seen as critical. Beyond tariffs, they will likely also address digital trade, market access, data localization rules, and services movement – all contentious issues with long-term implications for the bilateral economic relationship.
Observers say the coming weeks will be crucial in determining whether the world’s two largest democracies can steer their trade relationship back towards stability, or whether domestic politics and global realignments will lead to a more prolonged standoff.
