Understanding the Zero-For-Zero Strategy and Its Potential Benefits for India

As India navigates its trade relations with the United States amidst looming tariff threats from President Donald Trump, a concept called the "zero-for-zero" strategy has surfaced. This approach is gaining traction among industry stakeholders who suggest it could serve as an effective alternative to the broader trade agreements currently in discussion.

Organizations such as the Global Trade Research Initiative (GTRI) and the Confederation of Indian Textile Industry (CITI) are advocating for the elimination of tariffs on selected product lines. They argue that this focused approach would be more beneficial for India compared to engaging in an expansive trade pact with the U.S.

How the Zero-For-Zero Strategy Functions

The zero-for-zero tariff strategy involves two countries agreeing to remove tariffs on specific categories of goods rather than implementing wide-ranging tariffs or entering a comprehensive trade agreement. According to the GTRI, approximately 90% of industrial goods currently traded between India and the U.S. could be encompassed under this arrangement.

India boasted a trade surplus of about $46 billion with the U.S. in 2024, as stated by data from the U.S. Census Bureau. Advocates of the zero-for-zero strategy believe that India stands to gain the most from such an agreement, given the current balance of trade favors the country.

For the zero-for-zero approach to be effective, both India and the U.S. must agree on specific product categories where tariffs can be abolished.

Why Choose Zero-For-Zero Over Broader Trade Agreements?

The zero-for-zero model is seen as a practical trading solution that can potentially be implemented quickly, within just a few days, unlike bilateral trade agreements which require extensive negotiations and could take months to finalize. Discussions between India and the U.S. are expected to continue until at least September in search of a wider Trade Agreement (BTA). However, historical trends from India's negotiations with the European Union and the United Kingdom suggest that delays are likely.

Notably, the Trump administration has indicated that it will not provide any relief from reciprocal tariffs during negotiations, with the president stating his intention to enforce these tariffs beginning in April. The GTRI and CITI believe that the zero-for-zero strategy could mitigate the adverse effects of these tariffs on India.

Under this strategy, if 90% of industrial goods traded—excluding sensitive sectors—are included, the reciprocal tariffs on the remaining 10% would have minimal impact on India. For instance, India's annual passenger car exports to the U.S. are worth about $13 million, suggesting that reciprocal tariffs on automobiles would not severely affect the Indian economy.

The GTRI also expresses concerns about the potential vulnerabilities in India's automobile and agriculture sectors should a wider trade agreement be signed. Historical references are made to Australia where the local automobile industry struggled after tariffs were significantly reduced.

Furthermore, any trade deal could allow the U.S. greater access to the Indian food market, posing risks to around 700 million people involved in agriculture. Even a small opening of agricultural products to U.S. imports might set negative precedents for future concessions, as expressed by GTRI founder Ajay Srivastava.

Implications of China Plus One

The textile sector is particularly optimistic about the zero-for-zero strategy, especially within the context of the "China Plus One" strategy, which aims to lessen dependence on China by increasing manufacturing in alternative markets. With China facing additional tariffs from the U.S., Indian textile exports are projected to become increasingly competitive.

Eliminating tariffs could raise U.S. textile and apparel imports from India significantly, with the expectation that trade volumes could jump from $10.8 billion to $16 billion. Moreover, the anticipated impact of reciprocal tariffs on India is minimal, as U.S. textile exports to India are currently only around $0.41 billion.

Challenges Facing the Zero-For-Zero Strategy

Despite the potential advantages, the U.S. may continue to push for increased market access in Indian automobile and agricultural sectors, complicating India's position. President Trump has often highlighted India's tariffs on luxury cars and motorcycles as points of contention. Meanwhile, U.S. Secretary of Commerce Howard Lutnick has emphasized that agriculture should not be excluded from trade discussions with India.

In closing, while the zero-for-zero strategy offers a promising way for India to navigate trade relations amidst tariff threats, its success hinges on cooperative negotiations between India and the U.S., and an understanding of each other's market needs.

strategy, tariffs, trade, economy, exports