US Tariff shocks and India-US trade negotiations: Balancing strategic design and agricultural sensitivities

This study evaluates the economic implications of recent US tariff escalations, centered on the "7th and 27th August Tariff Shock", and examines India's strategic options in responding through unilateral reforms and prospective bilateral trade agreements with the United States. Using the Global Trade Analysis Project (GTAP) model, the paper simulates ten scenarios encompassing tariff shocks, India's unilateral tariff cuts of different intensity, and various designs of an India-US Free Trade Agreement (FTA). The results reveal that while unilateral tariff reductions yield moderate gains by improving input efficiency and competitiveness, the most substantial increases in India's GDP and welfare occur under reciprocal liberalization with the US. The Full FTA scenario delivers the highest overall benefits, driven by strong expansion in manufacturing, pharmaceuticals, and technology-intensive sectors. However, agricultural liberalization introduces volatility and welfare losses, underscoring the sector's political and economic sensitivity. A selective FTA excluding agriculture emerges as an optimal pathway-achieving welfare and output gains comparable to a full and comprehensive FTA while safeguarding India's rural economy.