The complexity of reciprocal tariffs and the role of soybean trade in India-US relations

By Dr Aishwary Gupta and Dr Badri Narayanan Gopalakrishnan

The term “reciprocal tariffs” is inherently vague, raising critical questions about the level of aggregation at which reciprocity should be defined. Should it be determined on a line-by-line basis, at the chapter level, sectoral level, or for the entire economy? The answer to this question has significant implications for trade negotiations, particularly for India and the United States.

If reciprocity is defined at the sectoral level, agriculture would be the hardest hit sector in India. The simple average tariff imposed on agricultural goods by India stands at 39%, a stark contrast to the 5% imposed by the US. Reducing these tariffs to US levels is nearly impossible for India, as it remains a largely agrarian economy. While agriculture contributes only 14% to India’s GDP, nearly 46% of the workforce depends on it for their livelihood. The economic structures of India and the US are vastly different—only 10% of the US workforce is engaged in agriculture, with farm employment accounting for just 1.2%. Given these disparities, true reciprocity in tariffs is fundamentally impractical.

A Pragmatic Approach: Selective Tariff Reductions

The real question is whether India can reduce tariffs on select agricultural products that are of mutual benefit to both India and the US—commodities that the US is eager to export and that India needs for food security or due to insufficient domestic production. One such commodity that stands out is soybean, which holds strategic importance in both trade negotiations and domestic supply chains. India should focus on protecting key sectors with significant employment, such as dairy and poultry, while selectively lowering tariffs on agricultural imports that do not threaten domestic livelihoods but enhance food security.

Soybean is an ideal candidate for tariff reduction. In FY 2024, India’s agricultural imports totaled $32 billion, with nearly 50% ($16 billion) comprising vegetable oils. Palm oil accounted for $8.7 billion, soybean oil for $4.07 billion, and sunflower oil for $3.38 billion. India sources palm oil from Indonesia and Malaysia, soybean oil from Brazil and Argentina, and sunflower oil from Ukraine and Russia. Additionally, India imports oilseeds worth $637 million, with soybean oilseeds forming the largest share ($458 million) from African nations such as Togo, Niger, and Mozambique.

Despite the US being the second-largest exporter after Brazil, with $28 billion in soybean exports —India does not import soybean oilseeds or soybean oil from the US. A pragmatic move for India would be to lower its high tariffs—currently 45% on oilseeds and 27.5%-49.5% on crude and refined soybean oil—thereby increasing imports from the US.

One of the primary reasons India has limited domestic production is its restriction on genetically modified (GM) soybean cultivation. While the US and Brazil account for 70% of global soybean production, their yields are over three times higher than India’s due to widespread GM cultivation. Without the adoption of GM soybeans, India will continue to face a supply-demand gap, making imports a necessary and strategic solution.

Market Trends and Price Dynamics

The Indian Vegetable Oil Producers Association (IVPA) has noted that crude palm oil currently carries a $50 premium over soybean oil, a trend that may not be sustainable. As a result, Indian buyers have begun switching to soybean oil, leading to a 131% and 227% increase in soybean oil imports in October and November 2024, respectively. Additionally, Indonesia’s policy of increasing biodiesel production—expected to use 13.6 million metric tons of palm oil in 2025—could further reduce the exportable surplus of palm oil, driving up prices and making soybean oil more attractive for Indian importers.

The Political Economy of Soybean Trade

There are multiple reasons why increasing soybean imports from the US could serve India’s strategic interests:

1. US Trade Policy and Retaliation Risks: The US has imposed tariffs on many trading partners, particularly China. Given that China, Mexico, the EU, and Canada are major importers of US soybeans, retaliatory tariffs could impact US soybean exports. If India steps in as a new importer, it could provide relief to US soybean farmers.
2. Trump’s Political Strategy: US farmers have been long-time supporters of Donald Trump. In the 2024 election, he won all but 11 of the 444 farming-dependent counties. Given that many of these counties rely on soybean exports, a strategic trade deal with India could appease his support base.
3. Trump’s Negotiation Style: The Trump administration’s trade policy is known for its headline-grabbing deals, often resembling a reality show. For instance, Trump publicly announced Masayoshi Son’s $100 billion investment in OpenAI, turning it into a media spectacle. Similarly, India could leverage a $5 billion soybean (including oil) import deal as a high-profile diplomatic gesture, giving Trump an opportunity for a grand announcement that fits into his theatrical style of governance.

Thinking Beyond WTO Norms

The landscape of international trade has shifted away from traditional free trade agreements. In the 21st century, major economies increasingly override WTO norms to pursue strategic trade agreements. India must adapt to this reality and explore unconventional trade strategies. A well-negotiated soybean import deal could serve as a key bargaining chip in India-US trade negotiations, potentially yielding broader economic and political benefits.

Dr Gupta is Associate Fellow, Pahle India Foundation and Dr Gopalakrishnan is Fellow, NITI Aayog.

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