India and the USA are expected to have an interim trade deal towards the end of June, with both countries expected to come to an interim agreement on tariffs, and India seeking an exemption from the 26% reciprocal tariff imposed by the USA. With the USA being India’s largest trading partner, accounting for 18% of India's total goods exports, 6.22% of imports, it is imperative for both countries to come to a mutually-beneficial agreement. This interim trade deal before the proposed Bilateral Trade Agreement later this year, makes it the perfect time for you to understand what trade deals are and what you need to know about them.

1. Trade Deals Are Economic Agreements:

Trade deals define what rules of exchange are between two or more countries. These exchanges can be on investments, services, goods, regulations, and more. Trade deals let countries sell in other countries, with reduced taxes or tariffs, to promote trade amongst the countries. A trade deal is what lets Australian wine or avocados into Indian markets at reduced prices, as India and Australia have an Australia-India Comprehensive Economic Cooperation Agreement (AI-CECA).

2. They Often Decide Who Pays More (Or Less) at Customs:

Tariffs are essentially taxes that a country imposes on foreign goods. Tariffs are the taxes a country slaps on foreign goods. Trade deals aim to reduce or eliminate these. For instance the India-UAE Comprehensive Economic Partnership Agreement (CEPA) and the India-ASEAN Free Trade Agreement (FTA) reduced prices for goods imported into India from UAE and ASEAN countries like Thailand, Malaysia, Vietnam, etc.

3. There Are Different Types of Trade Deals:

There are different types of trade deals, like Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs), and Comprehensive Economic Partnership Agreements (CEPAs), each varying in scope. India’s CEPA with the UAE covers not just goods but also services, investments, and intellectual property, while others may only cover goods.

4. Tariffs Bring In Money But Also Protect:

Countries have high tariffs to protect domestic producers and to promote domestic goods. For instance, India charges 100% import tariffs on agricultural products, to safeguard millions of Indian farmers from being undercut by cheap foreign agricultural products.

5. Trade Deals Also Have Non-Tariff Elements:

Not all barriers are financial as some are based on sanitary aspects, standards, labelling requirements, packaging norms, and more. An example of this would be the recent rejection of Indian mangoes in the USA, owing to documentation issues regarding irradiation that the USA mandates on agricultural imports. There’s no tariff there but rules like these can be trade barriers.

6. Trade Deals May Also Include a “Negative List”:

A ‘negative list’ is a list of products that are excluded from tariff cuts. An example of this is that though India has an FTA with Japan, agriculture and dairy products are on the negative list, implying that tariff protections remain in place in those sectors, for the reason mentioned above.

7. Deals Aren’t Always About Goods:

While tariffs were usually about imports and exports of goods, it has changed in the 21st century to include services (like IT outsourcing), e-commerce; apart from aspects like environmental standards and even digital data. India’s FTA with Mauritius, for example, includes provisions on financial services, environmental concerns, and even tourism.

8. Trade In Services Is a Growing Focus:

It’s not just about exporting onions or phones or wine. Countries now negotiate terms for lawyers, engineers, nurses, and teachers to work abroad. Via trade deals that India strikes with other countries, Indian professionals can benefit from such clauses in agreements. An example of this would be the agreement between India and the UK that lets Indian nurses work in the UK.

9. “Rules of Origin” Can Be Deal-Breakers:

Rules of Origin are there to ensure a third country doesn’t piggyback on a trade deal between two countries. These usually involve mandating a certain percentage of a good’s content being from the local country instead. For a good from Sri Lanka to enjoy tax benefits under the India-Sri Lanka FTA, it should have a percentage of content from either country, and not other countries like China.

10. Trade Deals Can Fuel or Reduce Trade Deficits:

If a country imports much more than it exports under a trade deal, it can spark a political backlash apart from having economic consequences. The goods trade deficit (difference between imports and exports) between USA and India is USD 41.18 billion in goods in 2024-25. The upcoming interim trade deal may discuss this as well. Another example of trade deals impacting trade deficits and decisions being taken accordingly is India exiting the Regional Comprehensive Economic Partnership (RCEP) negotiations due to fears of a ballooning trade deficit with China.

11. Trade Agreements Often Come With Safeguard Mechanisms:

To calm fears of flooding the market, trade deals may include escape clauses. For example, if onion imports suddenly surge and harm domestic farmers, a safeguard duty can be temporarily imposed.

12. Not All Trade Agreements Are Bilateral:

There are several regional (like ASEAN), plurilateral (like IPEF) and multilateral trade (WTO) agreements apart from bilateral agreements. India is part of several such overlapping frameworks, each with its own objectives and constraints.

13. Trade Negotiations Take Time—and Strategy:

Even a small tariff cut on agricultural products or any other product can take years of back-and-forth, as its implications are far bigger than just one specific good. India’s trade agreement with Australia, for instance, took over a decade to reach the stage and the Australia-India Economic Cooperation and Trade Agreement (ECTA) is now still evolving.

14. Public Opinion and Protests Matter:

Trade deals affect jobs and local economies. In India, protests by dairy cooperatives, spice growers, or farmers’ unions have influenced negotiation terms—like when the RCEP negotiation was paused indefinitely.

15. Trade Deals Shape Daily Life More Than You Realise:

That smartphone you bought at a discounted rate, the wheat India exports to Egypt, the Japanese cars on Indian roads—all exist because trade deals made them cheaper, accessible, and viable.

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