Introduction

The trade relationship between the United States and India has evolved significantly over the past decades. As two of the world’s largest democracies and economies, their commercial interactions are not merely about goods and services; they are deeply intertwined with geopolitical shifts, strategic alignments, and the aspirations of a globalised world.

Here we look at the US-India trade landscape, examining the volume and industries involved, the economic implications of defence cooperation, the complexities of trade barriers including recent tariff impositions, the flow of US investment into India, and the burgeoning presence of Indian businesses and entrepreneurs in the US.

This post is part of a series on trade relations as viewed through a lens of economic sectors, and we are publishing new posts each month as the trade relationships, particularly of the US, evolve.

Volume of Trade and Involved Industries

The economic relationship between the United States and India has witnessed substantial growth. According to the U.S. Trade Representative (USTR), the total value of goods and services traded between the two nations reached an estimated $212.3 billion in 2024, marking a robust 8.3 percent increase from the previous year. This figure underscores the dynamic expansion of commercial ties, positioning the US as India’s largest trading partner for the fourth consecutive year, with bilateral trade valued at $131.84 billion in fiscal year 2024-25.

Key Industries Driving Bilateral Trade

The trade flow between the US and India is diverse, encompassing a wide array of sectors. Several industries stand out due to their significant contribution to the overall trade volume:

Indian Exports to the US:

  • Textiles and Apparel: India has long been a major exporter of garments and textiles to the US. This labour-intensive sector is a significant contributor to India’s export economy, providing employment to millions. The demand for Indian-made apparel remains strong in the American market.
  • Gems and Jewellery: India’s diamond cutting and polishing industry, along with its vibrant jewellery manufacturing sector, make it a leading supplier to the US.
  • Engineering Goods: This broad category includes a variety of products such as auto parts, power equipment, and industrial machinery. The export of engineering goods reflects India’s growing manufacturing capabilities and its integration into global supply chains.
  • Seafood: India is a significant exporter of seafood, particularly shrimp, to the US market. The country’s extensive coastline and aquaculture industry support a thriving seafood export business.

US Exports to India:

  • Crude Petroleum: The US has emerged as a crucial supplier of crude petroleum to India, supporting India’s energy security needs. This trade component has grown in importance as India diversifies its energy import sources.
  • Diamonds: Similar to India’s exports, diamonds also feature prominently in US exports to India, often for further processing and re-export.
  • Airplane Parts: As India’s aviation sector expands and modernises, the demand for aircraft components and parts from the US has steadily increased. This reflects the deepening collaboration in the aerospace industry.
  • Coal Briquettes: Coal remains a vital energy source for India, and the US contributes to meeting this demand through exports of coal briquettes.

Beyond these major industries, the trade relationship also encompasses a multitude of other sectors, including pharmaceuticals, chemicals, agricultural products, and services, particularly in information technology and business process outsourcing. The continued diversification of trade across these sectors underscores the comprehensive nature of the US-India economic partnership and its potential for further expansion.

 

US Defense Industry Involvement and Geopolitical Context

The strategic dimension of the US-India relationship has increasingly manifested in robust defence industrial cooperation. This collaboration extends beyond mere arms sales, aiming to bolster India’s indigenous technological capabilities and foster a more integrated defence ecosystem. The United States has expressed satisfaction with the seamless integration of its defence items into India’s military inventory. This partnership has also had a tangible economic impact, with India’s defence exports experiencing a remarkable surge, escalating from $92 million in the financial year (FY) 2013–14 to an impressive $2.63 billion.

While India’s defence spending hovers around 1.9 percent of its Gross Domestic Product (GDP), the United States allocates a more substantial 3.5 percent of its GDP to defence. This disparity, however, does not diminish the economic significance of defence trade, which serves as a critical component of the broader economic relationship.

The India-China Rivalry: A Geopolitical Catalyst

The geopolitical landscape of Asia, particularly the enduring rivalry between India and China, serves as a significant catalyst for India’s defence expenditure and its strategic partnerships. China’s consistently rising defence budget exerts considerable pressure on India to augment its own military capabilities and spending. India’s defence budget has consequently seen a substantial increase, from USD 37.3 billion in FY2014-15 to USD 75 billion in FY2024-25.

This rivalry, traditionally viewed through the prism of their unresolved border disputes, extends into economic and military competition across various domains. The strategic imperative to counter China’s growing influence in the Indo-Pacific region has further propelled India to seek advanced defence technologies and partnerships, with the United States emerging as a key collaborator. While the economic implications of this rivalry are profound, driving defence-related trade and investment, the underlying motivations are rooted in complex geopolitical dynamics and national security concerns.

 

Trade Barriers and Trump’s Tariffs

Despite the burgeoning trade relationship, both the United States and India have encountered various trade barriers that have, at times, hindered the full potential of their economic partnership. The U.S. Trade Representative (USTR) has consistently highlighted concerns regarding both tariff and non-tariff barriers that impede the import of American products into the Indian market. These include, but are not limited to, stringent domestic testing and certification requirements, particularly in critical sectors such as telecommunications. Such measures, while ostensibly aimed at ensuring product quality and safety, can inadvertently act as significant impediments to foreign businesses seeking to enter or expand within the Indian market.

The Impact of Trump’s Tariffs

Former US President Donald Trump’s administration adopted a more confrontational stance on trade, frequently vocalising concerns about what it perceived as an imbalanced and one-sided trade relationship with India. Trump often pointed to the relatively high tariffs imposed by India on American goods as a key grievance. This dissatisfaction culminated in the imposition of substantial tariffs on Indian imports. On 31 July 2025, Trump announced a 25 percent ‘reciprocal’ tariff on Indian imports, which came into effect on 7 August. More recently, reports indicate that these tariffs have been escalated to as high as 50 percent, placing them among the highest duties levied by the US on any trading partner.

These tariffs have had a significant impact on Indian exporters, particularly those in labour-intensive sectors such as textiles, garments, jewellery, and seafood, which are major contributors to India’s export economy. The imposition of such high duties has led to concerns about the competitiveness of Indian goods in the US market and the potential for job losses in these key sectors.

Indian Purchases of Russian Oil: A Point of Contention

One of the explicit reasons cited for the increased tariffs from the US, specifically an additional 25 percent penalty, has been India’s continued and substantial purchase of Russian oil. Following Russia’s invasion of Ukraine in 2022, Western sanctions led to a redirection of Russian oil supplies, with India emerging as the largest buyer of this displaced crude. India has reportedly saved significant amounts by ramping up its imports of discounted Russian oil, providing a crucial economic benefit amidst global energy price volatility.

However, this strategic energy decision has become a point of contention with the US, which views these purchases as indirectly financing the conflict in Ukraine. While India maintains that its energy security needs necessitate these imports, the US has used trade measures, such as the increased tariffs, to exert pressure. Analysts suggest that any economic gains India has made from purchasing cheaper Russian oil could be significantly eroded, or even negated, by the impact of Trump’s new tariffs on its exports to the US. This situation highlights the complex interplay between economic interests, geopolitical alignments, and trade policy in the US-India relationship.

US Investment in India

US investment in India forms a crucial pillar of the bilateral economic relationship, extending beyond mere trade in goods and services to encompass significant capital flows and strategic partnerships. In 2023 alone, India attracted a substantial $4.7 billion in fresh foreign direct investment (FDI) from the United States. This influx of capital underscores the growing confidence of American investors in India’s economic potential and its burgeoning market.

The China Exodus and Diversification Strategies

A notable trend influencing US investment in India is the ongoing ‘China exodus,’ wherein American companies are increasingly seeking to diversify their supply chains and manufacturing bases away from China. India has actively positioned itself as an attractive alternative, capitalising on its large domestic market, a burgeoning skilled workforce, and a proactive government keen on attracting foreign investment.

Several factors are contributing to India’s appeal in this context:

  • Market Size: India’s vast and growing consumer market offers a significant incentive for companies looking to establish a manufacturing presence that can cater to both domestic demand and export markets.
  • Regulatory Reforms: The Indian government has implemented various regulatory reforms aimed at improving the ease of doing business, streamlining investment processes, and creating a more conducive environment for foreign companies.
  • Relaxation in Foreign Direct Investment (FDI) Policies: Progressive liberalisation of FDI policies in key sectors has opened up new avenues for American companies to invest and operate in India.
  • Potential for a Free Trade Agreement (FTA): While a comprehensive FTA is still under discussion, the prospect of such an agreement further enhances India’s attractiveness as a long-term investment destination for US businesses.

This strategic diversification away from China presents a significant opportunity for India to attract more US investment, particularly in manufacturing, and to integrate further into global supply chains. The shift is not merely about relocating production; it represents a broader re-evaluation of global manufacturing strategies and a recognition of India’s growing role in the international economic order.

The Enduring Legacy of Call Centres

Long before the recent discussions about the China exodus, India had already established itself as a global leader in the business process outsourcing (BPO) sector, particularly in call centre operations. The 1990s witnessed a significant wave of US companies, including prominent names like American Express, Dell, and Verizon, outsourcing their customer service and back-office operations to India. This trend was primarily driven by the substantial cost savings offered by India’s competitive labour market and a large pool of English-speaking graduates.

India’s call centre industry, a vital component of its broader BPO sector, has since matured and diversified, evolving into a sophisticated service industry. It has contributed significantly to India’s economic growth and employment, with the sector’s valuation reaching an estimated $22 billion. While the nature of outsourcing has evolved with advancements in technology and automation, the foundational investment by US companies in India’s service sector laid the groundwork for a robust and interconnected economic relationship.

Indian Businesses and Entrepreneurs in the US

The vibrant presence of Indian businesses and entrepreneurs in the United States is a testament to the strong economic and cultural ties between the two nations. This dynamic community has not only contributed significantly to the US economy but has also fostered innovation and job creation across various sectors.

Indian companies have established a substantial footprint in the American market, with many choosing regions like Fairfax County, Virginia, as their strategic operational bases. These India-based enterprises are reported to be responsible for creating approximately 91,000 jobs and contributing an estimated $15 billion in investments within the US. The diversity of these businesses is noteworthy, ranging from large corporations to small and medium-sized enterprises (SMBs).

Beyond SMBs and large-scale operations from Indian corporations, Indian-origin entrepreneurs have emerged as significant figures in the American business landscape, founding and leading major companies across diverse industries, particularly in technology and innovation. Many have risen to prominence, becoming titans of industry and contributing to America’s technological advancements. The Silicon India list, for instance, spotlights numerous promising companies in the US founded and managed by individuals of Indian descent.

The Indian diaspora’s contribution extends beyond direct business ownership to broader economic and societal impacts. Indian Americans are disproportionately represented in high-skilled professions and have made substantial contributions to research, innovation, and academia in the US. Furthermore, the Indian American community contributes substantially to tax revenues, underscoring their economic integration and prosperity within the United States.

Speculation on the Future

The future of US-India trade relations will, as all relationships in a complex world, continue to evolve based on a wide array of factors.

One of the most significant determinants will be the evolving global trade landscape. The push for supply chain diversification, particularly away from China, presents a substantial opportunity for India to further integrate into global manufacturing and supply networks. Should this trend continue, and India successfully implements reforms to enhance its manufacturing competitiveness, US investment in India is likely to accelerate, fostering deeper economic ties. The potential for a comprehensive Free Trade Agreement (FTA) between the two nations, though a long-term prospect, could unlock even greater trade volumes and investment flows by reducing tariffs and non-tariff barriers. Though investors and companies are likely to remain wary of replicating in India the problem of a single manufacturing hub like China.

Of course, the relationship is not without its challenges. The recent imposition of high tariffs by the US, partly in response to India’s energy procurement from Russia, highlights the potential for geopolitical considerations to disrupt economic cooperation. The ability of both nations to navigate these sensitive issues, finding common ground while respecting sovereign interests, will be crucial. A sustained period of high tariffs could dampen trade growth and incentivise Indian exporters to seek alternative markets, potentially undermining the progress made in recent years.

Furthermore, the domestic political environments in both countries will play a vital role. Policy continuity, regulatory stability, and a commitment to fostering an open and predictable trade environment will be essential for attracting and retaining foreign investment. A closing off or hostile administration in either country could quickly derail and unwind years of progress.

In the defence sector, the deepening strategic partnership is likely to continue, driven by shared security concerns in the Indo-Pacific. This will translate into further defence trade and technology transfer, contributing to India’s military modernisation and self-reliance. However, the economic benefits of this cooperation will need to be carefully balanced with broader trade considerations.

Ultimately, the future of US-India trade relations is likely to be characterised by both cooperation and competition. The shared democratic values, growing economic complementarities, and converging strategic interests provide a strong foundation for continued growth. Yet, the capacity to address contentious issues, manage geopolitical pressures, and adapt to a rapidly changing global environment will determine the extent to which this partnership realises its full potential. Investors will keenly observe these dynamics, seeking opportunities in sectors that benefit from increased collaboration and resilience in the face of evolving challenges.

 

DCSC and Sector-based Investing

Investors who want to view the economy through the lens of economic sectors can use DCSC to better understand their own portfolios, find gaps in their sector coverage and diversification, and discover potential gems in new sectors. DCSC can also be leveraged to highlight risks and prepare investors to react quickly if tariffs or other restrictions target specific industries.