PRIME MINISTER Narendra Modi’s meeting with U.S. President Donald Trump in Washington on February 13 ended with the leaders setting a $500-billion annual bilateral trade target to be achieved in the next five years. Given that annual India-U.S. trade in goods and services is currently less than $200 billion, and that the Trump regime is all set to unleash a tariff war on its trading partners, including India, it’s a tall task.

The leaders also set out a broad plan to achieve the target through an initiative called the ‘U.S.-India COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century’ to drive change across key pillars of cooperation: defence, energy security, technology and innovation, trade and investment, etc.

A joint statement talks about the plans for most of the pillars. In defence, a 10-year framework for partnership, which will see the U.S. expand the sale of defence products and co-production with India to strengthen interoperability and defence industrial cooperation, is planned. Energy security will cover mutually beneficial deals across sectors such as oil, gas, and civil nuclear energy. In technology and innovation, the U.S.-India TRUST (Transforming the Relationship Utilizing Strategic Technology) initiative will catalyse government-to-government, academia and private sector collaboration.

A mini trade deal, as a precursor to a mutually beneficial, multi-sector bilateral trade agreement (BTA), will be the most watched outcome of the meeting. Latest monthly data from the commerce ministry shows that India’s merchandise exports to U.S. during April 2024-January 2025 was $68.47 billion, higher than $62.84 billion in the corresponding period in FY24. Imports from the U.S. also rose to $37.62 billion from $35.46 billion in this period. “Not only are our exports increasing, our imports from the U.S. are also increasing,” a senior commerce ministry official said as balanced trade is key to negotiating a mutually beneficial BTA.

Meanwhile, the U.S. has unilaterally announced plans to increase tariffs on import of several items. Steel, pharmaceuticals, semiconductor chips, etc., are expected to be among those affected. “The Indian pharma industry plays a vital role in ensuring access to affordable, quality-assured medicines in the U.S., supplying nearly 47% of the generic medicines… The proposal regarding reciprocal tariffs... will be discussed through bilateral engagements... and further steps will be determined accordingly,” says Sudarshan Jain, Secretary General, Indian Pharmaceutical Alliance.

In its monthly recap of economic trends, SBI Research noted that India may not suffer much even in the case of increased tariffs by the U.S. “Our estimates show overall incremental tariff levels even at 15-20% imposed by the U.S. would still limit the impact on exports to U.S. only in the range of 3-3.5%,” says Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India. If Trump’s reciprocal tariff is product specific, there may not be much to worry. “For 75% value of U.S. exports to India, the average tariff is less than 5%”, says Ajay Srivastava, founder of New Delhi-based Global Trade Research Institute.

bilateral trade agreement

Trade compact: India and U.S. chase ambitious trade goals amid Donald Trump's big tariff push