The finalization of the Terms of Reference (TOR) that would direct future negotiations has brought India and the US one step closer to a comprehensive trade agreement, following US Vice President JD Vance’s meeting with Prime Minister Narendra Modi.

The larger Catalysing Opportunities for Military Partnership, Accelerated Commerce & Technology (COMPACT) program, which got underway in February 2025, includes the Bilateral Trade Agreement. By implementing integrated strategies on trade, supply chains, and technology transfer, it aims to improve economic involvement and defense relations.

The retaliatory tariffs imposed by the Trump administration are putting increasing pressure on India. As part of its larger trade reform, the United States announced a 26% tariff on Indian goods on April 2. Additionally, a new baseline 10 percent duty on all US imports went into force on April 5th.

USTR subsequently confirmed that the tariff would be 26 percent, despite initial reports indicating a 27 percent tax for India. Currently, a few of industries are exempt, including copper, semiconductors, medicines, and important energy commodities like coal, oil, and LNG.

The US and India had a $45.7 billion trade gap in 2024, up 5.1 percent from the year before, which serves as the backdrop for these talks.

 

This disparity and limited market access have been cited by the US government as the main issues influencing the new tariff system.

In the absence of an agreement, Indian imports will be subject to the full 26 percent tax as of July. President Trump's efforts to renegotiate various trade arrangements include applying comparable pressure to other US trading partners, such as South Korea, Japan, and the UK.

Vice President Vance's visit had cultural and emotional significance in addition to political ones.

Modi and Vance's discussion also covered more general strategic topics, such as the Quad summit that India will host later this year. Although a confirmed visit was not included in the US summary of the discussion, Modi stated that he was looking forward to inviting President Trump to the event.