Defence Deal Advances as Tariffs Hit India
Washington/New Delhi: The United States and India have agreed to a new ten-year Framework for the U.S.-India Major Defense Partnership, a pivotal outcome of their virtual 2+2 Intersessional Dialogue on August 25, 2025, aimed at strengthening military cooperation to address Indo-Pacific security challenges.
Co-chaired by U.S. Senior Bureau Official Bethany P. Morrison and Acting Assistant Secretary of Defense Jedidiah P. Royal, alongside India’s Additional Secretary Nagaraj Naidu Kakanur and Joint Secretary Vishwesh Negi, the dialogue advanced discussions on defense, trade and investment, energy security, critical minerals exploration, counternarcotics, counterterrorism, and the role of the Quadrilateral Security Dialogue (Quad) in promoting a free and open Indo-Pacific.
Separately, from August 27, 2025, the U.S. imposed tariffs of up to 50% on $60.2 billion of Indian exports, escalating trade frictions that contrast with the deepening security partnership and require sustained diplomatic efforts to maintain bilateral progress, particularly as India navigates economic and geopolitical pressures.
The defence framework, set for signing later in 2025, extends the 2015 agreement and prioritises co-production, technology transfers, and operational coordination under the India-U.S. Catalysing Opportunities for Military Partnership, Accelerated Commerce & Technology (COMPACT).
Key projects include a $3.5 billion deal for 31 MQ-9B drones (16 Sky Guardian for air surveillance, 15 Sea Guardian for maritime monitoring), with deliveries planned for 2026–2028, and a $1 billion agreement for 113 General Electric F414 jet engines for Tejas Mark 1A aircraft, with 80% technology transfer by 2028.
A $3.6 billion deal for six Boeing P-8I Poseidon reconnaissance aircraft, critical for Indian Ocean maritime surveillance, is paused amid tariff disputes but under negotiation for resumption by the first quarter of 2026.
Indian shipyards, including Cochin Shipyard and Mazagon Dock, are repairing U.S. Navy vessels under Combined Forces Maritime Component Command Bahrain agreements, while joint exercises like Malabar 2025 (with Japan and Australia) and Tiger Triumph enhance interoperability.
Challenges include bureaucratic delays in India’s defence procurement, U.S. export controls under the International Traffic in Arms Regulations (ITAR), and trust deficits in sharing sensitive technologies, such as Javelin anti-tank missile systems, with only 30% of Defence Technology and Trade Initiative projects operational since 2012, per the Center for Strategic and International Studies (CSIS). India’s push for 50% local production in drone deals faces U.S. resistance, delaying timelines.
The 2+2 dialogue discussed deepening bilateral trade and investment, reflecting the robust economic relationship, with U.S.-India goods trade at $119.1 billion in 2024, per the U.S. Census Bureau, and total trade, including services, at approximately $191 billion, per the Office of the U.S. Trade Representative.
However, the press releases of the 2+2 Intersessional Dialogue confirm no discussion of the U.S. tariffs, announced separately on August 6, 2025, and effective August 27, 2025, via a White House Executive Order.
These tariffs target $60.2 billion of Indian exports (17% of $80 billion U.S. exports), including textiles ($10.8 billion, 25% of sector exports), jewellery ($7.2 billion, 30%), auto components ($5.4 billion, 20%), and shrimp ($2.1 billion, 40%). The Economic Times estimates a $30 billion annual export loss, reducing India’s fiscal year 2026 gross domestic product (GDP) growth by 0.3–0.6%, with Goldman Sachs projecting a 0.4% cut. Micro, small, and medium enterprises (MSMEs) in Tamil Nadu’s textile hubs (e.g., Tiruppur, employing 600,000) and Uttar Pradesh’s carpet industry (e.g., Bhadohi, 98% export-driven, 200,000 jobs) face 2.5 million job losses. The Bombay Stock Exchange Sensex gained 1.2% on August 7, 2025, but textile and jewellery stocks fell 3–5%, while exempted pharmaceuticals ($10 billion exports) rose 2.7%. The rupee faces 2–3% depreciation risks, with $1.2 billion in foreign institutional investor (FII) outflows in August 2025, though a ₹25,000 crore MSME support package and $136 billion in diaspora remittances (fiscal year 2024–25) provide relief. Geopolitically, tariffs stem from India’s 2% digital services tax on U.S. tech firms and 1.5 million barrels per day of Russian oil imports (33% of energy needs), per the U.S. Energy Information Administration. India’s Ministry of External Affairs condemned the tariffs as “unfair,” citing the European Union’s €67.5 billion Russian liquefied natural gas imports in 2024. India’s challenge at the World Trade Organization (WTO) alleges trade rule violations, but U.S. national security claims complicate litigation. India is reportedly diversifying exports to the European Union (15% growth in 2024) and Association of Southeast Asian Nations (ASEAN) markets, with MSME cooperatives cutting costs by 10%. Potential retaliatory duties on U.S. almonds and dairy face resistance, as 40% of India’s workforce (190 million) relies on agriculture. U.S.-Pakistan rapprochement, including a $500 million trade deal in June 2025 and Trump’s May 2025 Kashmir mediation offer, heightens India’s strategic concerns.
Energy security discussions during the 2+2 discussions emphasised civil-nuclear cooperation, targeting 22,000 megawatts of nuclear capacity by 2032, and critical minerals exploration for semiconductors and batteries, with China’s 70% control of rare earth production posing supply chain risks.
The Quad, involving the U.S., India, Japan, and Australia, was reaffirmed, with 2025 initiatives including a $1 billion infrastructure fund for Southeast Asia (e.g., port upgrades in Indonesia), a critical minerals partnership to counter China’s dominance, and maritime domain awareness workshops with 15 Indo-Pacific nations (e.g., Vietnam, Philippines, Malaysia), per the U.S. State Department.
India’s strategic autonomy, balancing ties with the Brazil, Russia, India, China, and South Africa (BRICS) group and the Shanghai Cooperation Organisation (SCO), limits Quad commitments, with no binding agreements, weakening responses to China’s assertiveness in the South China Sea, where 60% of regional trade transits, per Chatham House, a British think tank based in London.
U.S.-Pakistan trade talks and Kashmir mediation strain India’s trust, reducing Quad cohesion. Counternarcotics and counterterrorism efforts targeted South Asian security, with pledges for deeper collaboration against drug trafficking (e.g., Afghan heroin routes) and terrorist networks.
The chairs reaffirmed their commitment to promoting a safer, stronger, and more prosperous Indo-Pacific region through the Quad. The dialogue concluded with the chairs expressing their appreciation for the “productive” meeting and “eagerness” to continue enhancing the breadth and depth of the bilateral relationship in a manner that benefits the people of America and India.
The chairs expressed satisfaction, emphasising citizen benefits, but the tariff war, regulatory hurdles, U.S.-Pakistan ties, and supply chain vulnerabilities necessitate sustained negotiations through WTO frameworks or mini-trade agreements to balance defence gains with economic stability in a geopolitically complex Indo-Pacific.
– global bihari bureau
