US India Sign 10-year Defense Pact with Trade Deal in Works

US and India Defense Deal and Long-term Geopolitical Ties

India and the U.S. signed a 10-year defense framework emphasizing information-sharing and technology cooperation, signaling a thaw in relations despite recent trade tensions and U.S. tariffs on Indian goods (including penalties tied to India’s Russian oil purchases). Both defense ministers described the pact as strengthening bilateral security and a rules-based Indo-Pacific. Trade talks have resumed with positive language, and analysts see a likely trade deal by year-end with moderately reduced U.S. tariffs. The framework broadens defense collaboration and possibly include U.S. tech transfers as India diversifies away from Russian arms.

Key points

• A 10-year India–U.S. defense framework was announced, focusing on information sharing and technology cooperation.
• Leaders called the pact a major pillar for regional stability and a growing strategic convergence.
• The move comes amid U.S. tariffs on Indian goods tied to Russia-related oil purchases and stalled trade talks that are now reportedly progressing.
• Analysts expect easing tensions and a likely trade deal by year-end; predicted U.S. tariff level on India around 20%.
• India remains a top global arms importer, historically reliant on Russia but diversifying suppliers (U.S., France, Israel gaining share).

India Provides Support to Exporters Hurt by US Tariffs In Anticipation of Deal

India’s cabinet approved a 450.6 billion rupee ($5.1 billion) export support package to help exporters hit by recent U.S. tariff hikes. The package includes 250.6 billion rupees over six years for trade finance, logistics and market support, and a 200 billion rupee credit guarantee scheme (running to March 2026) for collateral-free loans to exporters. Labour‑intensive sectors—textiles, jewellery and seafood—have been particularly affected, with export declines to the U.S. and resulting job losses. New Delhi hopes an emerging U.S.-India deal could ease punitive tariffs.

Key points

• Total support: 450.6 billion rupees, including 200 billion for credit guarantees through March 2026.
• Export promotion: 250.6 billion rupees over six years for affordable trade finance, logistics and market support.
• Credit guarantee details: covers collateral-free loans up to 500 million rupees to boost competitiveness and market access.
• Impact: U.S. tariff hikes (up to 50% on some items) have hit labour‑intensive sectors (textiles, jewellery, shrimp), causing export declines and job losses.
• Context: India hopes an impending U.S.-India economic/security deal may lead to tariff relief.

The US-India Breakdown Had Created Opportunity for Others

It should be noted that this was always going to be short-term. No other country or economic bloc can replace what the US offers India thus reapproachment with the US was bound to happen.

In the meantime, Germany and the EU are busy intensifying outreach to India as U.S.–India relations have cooled under Trump-era actions, creating an opening for Europe to deepen political, economic and strategic ties. Recent German initiatives (high-level visits, a €10bn loan for India’s green transition, student and scientific exchanges) show progress. Europe can offer technology transfer, investment, migration pathways and defense cooperation, but must understand India’s long-term, multi-aligned strategy, work across bureaucratic silos, and be prepared to take a long-term political bet similar to the U.S. approach.

Key points

• Recent momentum: Germany’s 2024 push (Scholz visit, Focus India paper) and EU-level engagement aim to make India a key partner; concrete steps include a €10bn German loan, new investments, student exchanges and science collaboration.
• Catalyst: Friction in India–U.S. relations (tariffs, sanctions, diplomatic incidents under Trump) weakened trust and opened space for Europe to expand ties with New Delhi.
• What India wants: technology transfer, large-scale foreign investment, migration pathways for skilled workers/students, and diversification of defense suppliers — while retaining ties with Russia and managing the China threat.
• Constraints and risks: bureaucratic hurdles on both sides, India’s limited diplomatic bandwidth, domestic political sensitivities in India (e.g., farmers, trade skepticism), and European coordination challenges across national and EU bodies.
• Strategic trade-off: Europe must be ready to make a long-term political commitment (and accept short-term costs) to gain India’s trust — mirroring the U.S. strategy — while balancing concerns about technology sharing and India’s geopolitical choices.

Geopolitical Background on US-India Defensive Ties

India–U.S. defense ties have moved from estrangement during the Cold War to a growing strategic partnership driven by shared concerns about China. Since 2005 the relationship has deepened through agreements (2005 framework, 2012 DTTI, 2016 Major Defense Partner status and 2016–2020 foundational pacts) and recent breakthroughs (June 2023 deals on F414 jet-engine co-production, MQ‑9B drones, and launch of INDUS‑X/iCET). Progress has been uneven because of American political caution, regulatory and legal barriers on both sides, and lingering strategic differences (India’s ties with Russia and differing China policies). Continued improvement will depend on effective institutional implementation (iCET/DTTI), greater private-sector engagement, regulatory reforms, and managing strategic expectations.

Key points

• Historical evolution: Cold War estrangement → post‑2005 institutionalization (framework agreement), DTTI (2012), Major Defense Partner (2016), and foundational military pacts (2016–2020).
• Recent breakthroughs: June 2023 deals (F414 co‑production with ~80% technology transfer, MQ‑9B drone sales) and launch of INDUS‑X/iCET to accelerate dual‑use defense tech collaboration.
• Main hurdles: U.S. reluctance to share top technologies with non‑allies, regulatory constraints (AECA/ITAR, CAATSA implications), slow bureaucratic processes and procurement mismatches on both sides, and strategic divergences (India’s Russia ties; different approaches to China).
• Path forward: Need patient, coordinated implementation of institutional mechanisms (iCET/DTTI), incentivizing private‑sector R&D and industry participation, regulatory streamlining, and managing expectations by balancing strategic autonomy with deeper cooperation.

Background on Trade Deal Talks

India and the United States launched the U.S.-India COMPACT and moved quickly into trade talks after Prime Minister Narendra Modi’s February 2025 visit to Washington. New initiatives (Mission 500 and a planned Bilateral Trade Agreement or BTA) signalled India’s willingness to cut tariffs to expand trade, while the Trump administration pressured fast concessions via a threatened “reciprocal tariffs” program and other levers (including defence cooperation). Negotiations remain unresolved: India has offered tariff reductions but faces intense U.S. demands on sensitive areas (agriculture, non‑tariff barriers, data rules, IP). Legal challenges to U.S. tariff authority and geopolitics complicate timing, but both sides had faced pressure to strike a first‑phase deal soon—possibly by July—to lock in momentum and set the stage for a larger agreement. However, talks broke down between Modi and Trump.

Key points

• February 2025 White House meeting produced COMPACT, Mission 500 (target $500bn by 2030) and pledge to negotiate a first‑phase BTA by fall 2025; India announced tariff cuts in its 2025 budget.
• The U.S. threatened 10% “reciprocal tariffs” (26% proposed for India) to compel deals; an executive suspension and a court ruling have created legal uncertainty but not halted negotiations.
• Washington presses India for cuts on agriculture, non‑tariff barriers, data localisation and IP; India has offered broad tariff reductions but faces domestic political sensitivities.
• Strategic ties (Quad, defence tech, U.S. companies in India) and mutual incentives make a deal attractive to both; India may accept significant concessions to secure a first‑phase agreement and maintain momentum for deeper talks.