A trade deal between India and the US is unlikely until rival countries explore and impose tariffs

US President Donald Trump with Indian Prime Minister Narendra Modi. File | Photo credit: AP

India and the US are unlikely to sign a trade deal until the US opens a series of new “Section 301 investigations”, closes them and imposes tariffs on India’s competitors such as Pakistan, Sri Lanka and the Philippines, a person familiar with the process said. According to the person, it was a “strategic error” that Pakistan was not included in the list of countries under investigation in the 301 overcapacity investigation launched in March 2026.

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An announcement of fresh 301 investigations against some of India’s rival countries is likely in the near future, The Hindu has learnt, although the timetables and subjects of these 301s are yet to be decided. For this reason, it is highly unlikely that a trade deal will be struck around Commerce and Industry Minister Piyush Goyal’s upcoming visit to the US for the G20 ministerial meeting starting on September 30.

The development appears to be in line with Commerce Minister Rajesh Agrawal’s remarks at the Global Fintech Fest 2026 earlier this month. Mr. Agrawal said India operates largely on an MFN (Most Favored Nation) tariff basis, while the US operates on an executive tariff basis, and that a trade deal would require a differential architecture and preferential market access structure for India.

The “301s” are part of the US government’s handling of a February 2026 US Supreme Court ruling that President Donald Trump’s “reciprocal” tariffs were an illegal application of the International Emergency Economic Powers Act (IEEPA). Prior to this decision, India and the US had reached an interim agreement on trade, which was announced through a joint India-US statement issued on 6 February.

Explained | Why was the India-US trade deal delayed?

The general tariff rate for Indian goods entering the US under the interim agreement was to be 18%, giving India an advantage over its main competitors. These include not only Pakistan (19%), which is the most politically sensitive country in New Delhi’s calculation, but also Vietnam (20%), Sri Lanka (20%), Bangladesh (19%) and the Philippines (19%). Nepal and Maldives did not fall under the reciprocal tariff and were imposed at 10%. They trade with the US on a most-favoured-nation basis after those tariffs are lifted.

A central issue for the Indo-US deal is that Pakistan, Sri Lanka and the Philippines have been subject to 301 investigations for forced labour, but are not on the list of 301 investigations for overcapacity that India has been subject to. Both probes were launched in March 2026. For example, Pakistan is subject to a 10% rate as a result of the 301 Forced Labor Investigation. Thus, there are currently no similar legal instruments through which tariffs for these countries can be further increased to their previous levels, while India is likely to be imposed at 8% under the overcapacity investigation, bringing the total tariff it faces back to 18%.

To complicate matters, last Friday, Mr. Trump signed into law the Lindsey O. Graham Russia-Iran Sanctions Act, which allows the executive branch of the US government to impose tariffs of up to 100% on the five largest importers of Russian oil. These include India and China.

Also read | Trade deal with India not far away, but gaps still exist: US official

The relationship between the existence of this new law and the likelihood that a bilateral trade agreement will be signed is not straightforward. Sanctions may be suspended in the U.S. national interest, according to the law. In addition, the Trump administration is mindful of global oil prices and their link to the price of U.S. gas (gasoline) at the pump, with the midterm elections scheduled for Nov. 3. Global oil prices are influenced by India’s energy consumption and resource extraction; New Delhi is the third largest oil importer in the world and the second largest market for Russian oil.

There are reports that the bill, originally scheduled for consideration after the midterm elections, was rushed through before a meeting between Chinese President Xi Jinping and Mr. Trump on September 24 in Washington, DC. China is reportedly delaying shipments of rare earths to US and Japanese companies. US officials have asked China to stick to recent commitments on rare earth export licenses, Reuters reports. This is one area where the sanctions authority could be used as leverage by the US in talks this week.

Another consideration is whether this new law increases the risk that Mr. Trump will cancel or substantially change any proposed US-India deal (as his leverage has increased), as he has done in the context of other trade relationships.

Published – 22 Sep 2026 22:31 IST