India–US Trade Deal: Pragmatic Statecraft, Not Diplomatic Surrender

A growing chorus of former policymakers and public intellectuals has labelled India’s recent trade understanding with the United States a diplomatic own goal — a lopsided bargain in which New Delhi supposedly gave away market access, regulatory flexibility and strategic goodwill while receiving little in return.

The critique carries moral clarity. It lacks macroeconomic realism.

Trade negotiations are not moral exercises; they are conducted under binding constraints such as currency vulnerability, capital-flow volatility, export dependence and geopolitical exposure. To assess a trade deal without accounting for these constraints is to confuse negotiating symmetry with economic statecraft.

The relevant question is not whether the agreement looks asymmetric on paper. It is whether India realistically possessed the leverage to extract better terms, and whether refusing the deal would have improved outcomes.

The answer to both is no.

Binding Constraints
At the point when negotiations intensified, India faced three binding macroeconomic constraints.

First, capital flows. India remains dependent on foreign portfolio inflows to finance its current account deficit. During recent global tightening cycles, FPIs turned sustained net sellers, triggering equity volatility and pressure on bond yields. Unlike surplus economies, India cannot weaponise trade policy without risking financial backlash.

Second, currency stress. India runs a structural merchandise trade deficit driven by energy imports, electronics and capital goods. Even when the dollar weakens globally, the rupee remains vulnerable during risk-off episodes, despite the RBI’s sizeable reserves. Trade brinkmanship under such conditions does not create leverage; it raises risk premia.

Third, export momentum. While merchandise exports have slowed in recent years, services exports have carried overall export growth. Yet looming threats from AI to services demand, combined with tighter immigration regimes affecting remittances, limit room for complacency. Preferential access to the US — India’s largest export market — is therefore macro-critical, not cosmetic.

Overlaying these was a geopolitical constraint. India’s strategic alignment with the West, alongside its energy and defence relationships elsewhere, narrowed its space for overt economic confrontation. Trade talks were never just bilateral spreadsheets; they were embedded in alliance politics.

Much criticism rests on the belief that India should have “held out”. But bargaining power flows from credible outside options, not rhetorical firmness.

For Washington, India accounts for a negligible share of total trade. For India, the US is its largest export destination and its most influential capital ecosystem.

Walking away would not have forced renegotiation. It would likely have delayed market access, raised regulatory friction, weakened investor confidence and possibly triggered retaliation, all without improving India’s negotiating position.

In macro terms, India’s outside option was worse than the deal. Acceptance, therefore, was rational rather than submissive.

Critics often treat trade agreements as moral contracts, where fairness is judged by symmetry of concessions. Trade economics, however, operates on marginal improvements over the status quo, not aesthetic parity.

India gained three outcomes that matter more than tariff tables:

1. Reduced trade uncertainty in pharmaceuticals, electronics and supply chains lowered risk premia for exporters and investors.
2. Greater regulatory predictability cut transaction costs far more meaningfully than marginal tariff reductions ever could.
3. Geoeconomic signalling positioned as a credible supply-chain alternative in a world reorganising away from China-centric production.

And in the interim a deal with the EU that has been long pending.

In modern trade regimes, credibility and certainty matter more than reciprocal arithmetic. Predictable frameworks attract capital in ways formal symmetry rarely does.

There is also historical amnesia at play. Almost every successful late industrialiser entered global markets through asymmetric trade arrangements. South Korea’s early US agreements, Mexico’s NAFTA accession, Eastern Europe’s integration into the EU, and China’s WTO commitments were profoundly asymmetric.

These were not economic humiliations, but growth accelerators in hindsight — mechanisms for embedding economies into dominant production networks.

The relevant metric is not whether India conceded more than its partner, but whether those concessions improve India’s growth trajectory more than refusal would have. On that count, the evidence is clear.

India runs a persistent current account deficit and depends on foreign capital to finance it. Trade policy, therefore, cannot be separated from financial stability. Protectionist signalling raises sovereign risk premia, weakens the currency, tightens domestic financial conditions and deters investment — without generating new leverage.

Trade diplomacy, in this context, functions as macroprudential policy. Accommodation is not capitulation; it is stabilisation.

The most dangerous illusion in trade policy is the belief that India currently enjoys the bargaining power of a surplus economy.

Pretence invites symbolic defiance that worsens currency stress, unsettles capital flows, constrains exports and damages credibility, all while delivering no compensating advantage.

Trade agreements are not contests of dignity, but instruments of growth, stability and risk management.

Critics are right in one narrow sense: on paper, India conceded more than it received. But that arithmetic truth obscures economic reality. Concessions are not costs unless better alternatives exist. India had none.

This deal reflects macro realism — an acknowledgement of external constraints and growth ambitions. It prioritises stability over symbolism, access over symmetry, and integration over rhetorical self-sufficiency.

In a world of volatile capital, fractured supply chains and geopolitical risk, the gravest policy error is not asymmetry; it is overestimating one’s leverage.

India did not surrender leverage; it acted with a clear recognition of the limits of its current power, an approach rooted in statecraft, not weakness.