The immediate trigger for today’s freeze is Washington’s decision to impose steep tariffs on Indian goods, pushing some duties as high as 50 %. That includes a 25 % “reciprocal” tariff and an additional 25 % “penalty” tied to India’s continued imports of Russian oil.

These punitive measures impact a wide swath of Indian exports—from textiles, gems and jewelry, footwear, furniture to chemicals. The U.S. claims that India has breached terms by sourcing energy from Russia, even as many other nations do so.

The result has been a sharp drop in shipments to America. India’s exports to the U.S. plunged by over 20 % in the period May–August 2025. Even ostensibly exempt goods—such as certain electronics or pharma products—have seen demand fall, partly due to broader knock-on effects of trade uncertainty.

In New Delhi, the Commerce Ministry and Finance Ministry are scrambling to cushion the blow. Officials have begun designing relief packages, including credit guarantees for exporters, special support for hard-hit sectors, and interventions in states such as Gujarat, Tamil Nadu, and Surat which host concentrated manufacturing clusters. There is talk also of exploring alternate trading partners more aggressively.

At the Kautilya Economic Conclave in October 2025, Jaishankar made clear on October 5 that any trade deal with the U.S. must respect India’s bottom lines. “In any agreement, there are things you can negotiate and there are things you can’t,” he said, adding that efforts are underway since March to “find that landing ground.” Both countries are struggling for a soft landing of the frozen $530 billion deal to crack up to mutual benefit.

Though he did not explicitly enumerate all those red lines, past public statements and political signalling strongly suggest that agriculture, dairy, tariff protections on sensitive sectors, and sovereign energy policy choices are among them.

India’s Prime Minister Narendra Modi, for his part, continues to emphasize protecting Indian farmers. During public addresses, he has reiterated that New Delhi will not compromise farm interests “at any cost.”

At times, the Modi–Trump relationship has been framed as a personal rapport, with expectations that a strong bond might deliver an easier deal. But that calculus now appears to have limits. Analysts in New Delhi note that Modi cannot be seen as capitulating to pressure from the U.S., especially in the run-up to domestic elections.

For much of early 2025, both countries talked up a sweeping trade deal potentially covering goods, services, IP, investment, and more, with media sometimes citing a notional ceiling as high as $530 billion in bilateral trade potential. However, with tariffs now in place, that vision lies stalled.

On the U.S. side, Commerce Department officials have pushed back in public language: a deal is possible only if India offers greater market access, loosens protection of tariffs, and limits policies that disadvantage U.S. firms. Some American negotiators also see the tariff leverage as a tool to extract deeper concessions.

Indian officials counter that any deal framed as a “one-sided opening” would damage critical domestic capacities. Delhi is sensitive to demands on agriculture, data/localization, and energy policy. They argue that the U.S. has double standards—many Western countries import Russian energy without facing similar retribution. Jaishankar has publicly called that approach “very unfair.”

In this high-stakes diplomatic dance, both sides have pressures that nudge them toward a deal—but for different reasons.

For the U.S, a stable, predictable trade relationship with India helps with broad geopolitical objectives—reducing dependence on China, strengthening alliances in Asia, and affirming that open trade deals remain viable even under a protectionist presidency. U.S. businesses see India as a critical growth and manufacturing market; exporters and multinationals would benefit from reduced tariff risk. Politically, Trump may seek a high-profile agreement to showcase “deliverables” ahead of domestic electoral matter.

For India the U.S. is one of India’s largest export markets; locking in favourable terms could provide stability to sectors now under tariff pressure’s deal sends a signal to global investors that India is open for business, supporting supply chain diversification away from China. But India’s political cost of concessions is high. Blowing up core domestic protections or sovereignty over energy choices could have electoral backlash, particularly among farming and regional constituencies.

Which side needs to yield first? The common view is that India is under greater short-term pressure because the tariff shock is immediate, while some U.S. capacity to wait is higher. But Modi’s domestic political constraints make a full “blink” hard. In effect, both are constrained, and the path forward is narrow.

Here are plausible scenarios, ranging from cautious to bold: The two sides could agree on a limited first tranche covering sectors where convergences already exist (e.g. manufactured goods, digital trade, services) while deferring the harder items (agriculture, energy policy) for later phases. Such a deal could help roll back at least part of the 50 % tariff. This strategy is similar to U.S. partial deals with Japan, South Korea, and the EU in past rounds.

Washington might offer to rescind or moderate the punitive tariffs first (perhaps to a 15–25 % level) in exchange for a structured negotiation timeline. That gives exporters breathing space while the deal architecture is finalized.

U.S. courts have already struck down sweeping tariff authority enacted under emergency powers (the V.O.S. Selections ruling) on grounds it exceeded presidential authority. India may lean on that legal opening in Washington to constrain Washington’s tariff powers, increasing leverage in talks.

India might offer reciprocity in select non-core sectors but insist on “carve-outs” for agriculture, dairy, public health, and energy. Negotiators could negotiate side-letters or special provisions to safeguard these sectors.

If no compromise is feasible, India may decide to treat the U.S. tariffs as a structural break and reorient trade policy—doubling down on other markets (Africa, Latin America, ASEAN, EU) and bolstering domestic industrial substitution. The EFTA trade pact, coming into force in October 2025, is one example of such diversification.

Indian exporters are losing margins daily; the political cost of prolonged disruption is growing. For India, energy policy and sovereignty are existential; for the U.S., market access is uppermost. Bridging those is politically fraught. Any move by Modi’s government that looks like capitulation risks attack from the opposition, regional parties, and farming lobbies. Years of talks with little closure have bred distrust. Each side may accuse the other of bad faith. The Russia-Ukraine conflict, global supply chain shifts, domestic inflation in the U.S., and U.S. relations with China all complicate the backdrop.

According to trade experts,, the most feasible path is a limited interim agreement that rolls back parts of the 50 % tariff—especially those seen as less controversial—and paves the way for longer-term engagement. The U.S. is unlikely to accept India’s full set of red lines. But India appears more willing now than before to engage pragmatically, as long as core sectors are protected.

The first move may come from the U.S.—offering partial tariff relief to coax India back to the table. If Trump wants a headline deal before his next campaign cycle, he may be motivated to soften his demands. But India will insist that any relief not be presented as “crushed India yielding” but rather as a negotiated outcome that preserved its strategic prerogatives.

Ultimately, India likely has more at stake (given the immediate tariff shock), but in a geopolitical sense, the U.S. also needs stability in key partnerships. The trick will be whether either leader is willing to take the political risk of compromise first—or whether the pressure forces both sides to act nearly simultaneously.

If India shows flexibility, offers credible guarantees for its red line sectors, and signals a genuine readiness to open modestly, the U.S. might respond in kind. But if either side misreads the political costs, the stalemate could deepen, perhaps rolling U.S. tariffs into a permanent status rather than a corrective measure. (IPA Service)