The core of the conflict lies in India’s steadfast protection of its rural economy. Indian officials have consistently refused U.S. demands for access for genetically modified (GM) crops and American dairy products. This is not merely an economic decision but a politically and culturally sensitive one, as India cites religious and sanitary objections, particularly regarding the use of animal-based feed. For India’s vast network of small farmers, the dairy sector is a lifeline, and opening the market to subsidized American goods is feared to cause irreparable damage to rural livelihoods.

While the new tariffs affect key value-added sectors like processed foods, marine products, and agri exports, they have so far spared critical industries such as pharmaceuticals and semiconductors. However, economists are sounding the alarm. If these tariffs become permanent, they could trigger significant rural income shocks and potentially reduce India’s GDP growth by up to 0.5%. This demonstrates the significant economic firepower the U.S. is using to push its trade agenda.

Indian officials frame this standoff as a “sovereignty challenge.” They argue that a nation’s right to protect its food security and rural livelihoods should not be jeopardized by trade agreements. The country has existing laws and policies in place, such as those related to food sovereignty and price protection systems, which are designed to safeguard its farming population. This highlights the foundational difference in how the two nations view the role of agribusiness in their respective economies.