Debunking the US-India Trade Deficit Myth: A Closer Look at Economic Realities

A report by the Global Trade Research Initiative (GTRI) challenges claims of a US trade deficit with India, revealing a $35–40 billion economic surplus when services and other sectors are included. The US earns $80–85 billion annually from India through education, digital services, finance, intellectual property, and arms sales. Despite a $44.4 billion goods and services trade surplus for India in FY2025, the broader economic relationship heavily benefits the US. The findings call for balanced negotiations and a holistic trade perspective.

The narrative of a significant trade imbalance between the United States and India has long been a contentious topic, with the US often citing a deficit as the rationale for imposing tariffs. However, a recent report by the Global Trade Research Initiative (GTRI) challenges this claim, arguing that the economic relationship between the two nations is far more balanced than it appears. By considering both goods and services, the US emerges with a “hidden” economic surplus of $35–40 billion in its dealings with India.

The Broader Picture: Trade Beyond Goods

While official US trade statistics focus solely on goods, they overlook substantial earnings from services and other sectors. According to GTRI, the US earns between $80–85 billion annually from India through education, digital services, financial operations, intellectual property, and arms sales. These additional streams of income paint a very different picture of the bilateral economic relationship.

“Trade in goods is just a piece of the puzzle,” said Ajay Srivastava, co-founder of GTRI. “India must account for the full economic landscape when negotiating trade agreements. The US benefits significantly from India and cannot present itself as a victim based solely on a narrow deficit figure.”

Breaking Down the Numbers

In FY2025, India recorded a $44.4 billion trade surplus with the US in goods and services. India’s exports to the US included $86.5 billion in goods and $28.7 billion in services, while imports stood at $45.3 billion and $25.5 billion, respectively. Despite these figures, former President Donald Trump has consistently overstated the deficit, claiming it to be over $100 billion—an exaggeration more than twice the actual number.

The “Hidden” Sources of US Revenue

The GTRI report highlights several key areas where the US generates significant income from India:

1. Education: Nearly 300,000 Indian students contribute $25 billion annually to the US economy. This includes $15 billion in tuition fees and $10 billion in living expenses, benefitting prestigious institutions like the University of Southern California, New York University, and Northeastern University.

   
   

2. Digital Services: US tech giants such as Google, Meta, Amazon, Apple, and Microsoft earn $15–20 billion from India annually through digital ads, cloud services, software sales, and subscriptions. Much of this revenue flows directly back to the US, given India’s minimal regulations on data and taxation.

   
   

3. Finance: American firms including Citibank, JPMorgan, and McKinsey generate $10–15 billion annually by offering financial advisory services, managing corporate deals, and consulting in India’s growing financial sector.

   
   

4. Global Capability Centers (GCCs): Companies like Walmart, Dell, IBM, and Cisco operate back-end offices in Indian hubs such as Bengaluru and Hyderabad. These centers handle global technology and analytics operations, generating $15–20 billion annually, with much of the economic value recorded in the US.

   
   

5. Pharmaceuticals and Licensing: US pharmaceutical giants, including Pfizer and Johnson & Johnson, earn $1.5–2 billion annually from India through patents, licensing, and technology transfers. Additionally, American auto companies like Ford and General Motors earn $0.8–1.2 billion from licensing and technical services.

   
   

6. Entertainment and Content: Hollywood studios and US-based streaming platforms generate $1–1.5 billion annually from Indian box office revenues and subscriptions. Netflix alone invests $400–500 million annually in Indian content.

   
   

7. Defense Sales: Over the past decade, the US has sold billions of dollars worth of military equipment to India, including aircraft and surveillance systems. These deals often include long-term maintenance and technology contracts, further boosting US revenues.

Implications for Trade Negotiations

As India and the US finalize discussions on a Bilateral Trade Agreement (BTA), Indian negotiators are keenly aware of these economic dynamics. Sources close to the negotiations suggest that India is unlikely to accept sweeping US demands on issues like digital trade and intellectual property protection without securing reciprocal benefits.

“If the US wants to focus narrowly on tariffs, India may adopt a similar approach,” said an official privy to the negotiations.

The first phase of the trade deal is expected to be signed before July 8, coinciding with the expiration of reciprocal tariffs imposed by the US on several countries.

Redefining the Narrative

The GTRI report underscores the need to move beyond simplistic narratives of trade deficits. By factoring in services, intellectual property, and other streams of revenue, the US-India economic relationship emerges as mutually beneficial, with the US enjoying significant gains. This holistic perspective could redefine how trade negotiations are approached, fostering a more equitable and fact-based dialogue between the two nations.