Missed signals, lost deal: How India-US trade talks collapsed

Indian officials expected U.S. President Donald Trump to announce the deal himself weeks before the August 1 deadline. The announcement never came.

New Delhi is now left with the surprise imposition of a 25% tariff on Indian goods from Friday (Aug 7), along with unspecified penalties over oil imports from Russia, while Trump has closed larger deals with Japan and the EU, and even offered better terms to arch-rival Pakistan.

Interviews with four Indian government officials and two U.S. government officials revealed previously undisclosed details of the proposed deal and an exclusive account of how negotiations collapsed despite technical agreements on most issues.

The officials on both sides said a mix of political misjudgment, missed signals and bitterness broke down the deal between the world's biggest and fifth-largest economies, whose bilateral trade is worth over $190 billion.

The White House, the U.S. Trade Representative office, and India's Prime Minister's Office, along with the External Affairs and Commerce ministries, did not respond to emailed requests for comment.

India believed that after visits by Indian Trade Minister Piyush Goyal to Washington and U.S. Vice President J.D. Vance to Delhi, it had made a series of deal-clinching concessions.

New Delhi was offering zero tariffs on industrial goods that formed about 40% of U.S. exports to India, two Indian government officials told Reuters.

Despite domestic pressure, India would also gradually lower tariffs on U.S. cars and alcohol with quotas and accede to Washington's main demand of higher energy and defence imports from the U.S., the officials said.

"Most differences were resolved after the fifth round in Washington, raising hopes of a breakthrough," one of the officials said, adding negotiators believed the U.S. would accommodate India's reluctance on duty-free farm imports and dairy products from the U.S.

It was a miscalculation. Trump saw the issue differently and wanted more concessions.

"A lot of progress was made on many fronts in India talks, but there was never a deal that we felt good about," said one White House official.

"We never got to what amounted to a full deal - a deal that we were looking for."

OVER-CONFIDENCE AND MISCALCULATION

Indian Prime Minister Narendra Modi, who visited Washington in February, agreed to target a deal by fall 2025, and more than double bilateral trade to $500 billion by 2030.

To bridge the $47 billion goods trade gap, India pledged to buy up to $25 billion in U.S. energy and boost defence imports.

But officials now admit India grew overconfident after Trump talked up a "big" imminent deal, taking it as a signal that a favourable agreement was in hand. New Delhi then hardened its stance, especially on agriculture and dairy, two highly sensitive areas for the Indian government.

"We are one of the fastest growing economies, and the U.S. can't ignore a market of 1.4 billion," one Indian official involved in the negotiations said in mid-July.

Negotiators even pushed for relief from the 10% average U.S. tariff announced in April, plus a rollback of steel, aluminium and auto duties.

Later, India scaled back expectations after the U.S. signed trade deals with key partners including Japan, and the European Union, hoping it could secure a similar 15% tariff rate with fewer concessions.

That was unacceptable to the White House. "Trump wanted a headline-grabbing announcement with broader market access, investments and large purchases," said a Washington-based source familiar with the talks.

An Indian official acknowledged New Delhi wasn't ready to match what others offered.

South Korea, for example, struck a deal just before Trump's August 1 deadline, securing a 15% rate instead of 25% by offering $350 billion in investments, higher energy imports, and concessions on rice and beef.

COMMUNICATION BREAKDOWN

"At one point, both sides were very close to signing the deal," said Mark Linscott, a former U.S. Trade Representative who now works for a lobby group that is close to the discussions between the two nations.

"The missing component was a direct line of communication between President Trump and Prime Minister Modi."

A White House official strongly disputed this, noting other deals had been resolved without such intervention.

An Indian government official involved in the talks said Modi could not have called, fearing a one-sided conversation with Trump that could put him on the spot.

However, the other three Indian officials said Trump's repeated remarks about mediating the India-Pakistan conflict further strained negotiations and contributed to Modi not making a final call.

"Trump's remarks on Pakistan didn't go down well," one of them said. "Ideally, India should have acknowledged the U.S. role while making it clear the final call was ours."

A senior Indian government official blamed the collapse on poor judgment, saying top Indian advisers mishandled the process.

"We lacked the diplomatic support needed after the U.S. struck better deals with Vietnam, Indonesia, Japan and the EU," the official said.

"We're now in a crisis that could have been avoided."

Trump said on Tuesday he would increase the tariff on imports from India from the current rate of 25% "very substantially" over the next 24 hours and alleged that New Delhi's purchases of Russian oil were "fuelling the war" in Ukraine.

WAY FORWARD

Talks are ongoing, with a U.S. delegation expected in Delhi later this month and Indian government officials still believe the deal can be salvaged from here.

"It's still possible," one White House official said.

The Indian government is re-examining areas within the farm and dairy sectors where concessions can be made, the fourth official said. On Russian oil, India could reduce some purchases in favour of U.S. supplies if pricing is matched.

"It likely will require direct communication between the prime minister and the president," said Linscott.

"Pick up the phone. Right now, we are in a lose-lose. But there is real potential for a win-win trade deal."