On September 19th, Trump administration announced the largest increase in the H1B visa fees since their inception in 1990. The announcement caused significant confusion among US employers as they scrambled to recall their foreign workers travelling outside the US and cautioned against any immediate travel plans. The Trump administration later clarified that the $100,000 additional surcharge will only be applied to new applications. Foreign workers from India have been the biggest beneficiaries of the H1B visa. This development comes after 25% tariffs on all merchandise exports from India and an additional 25% punitive tariffs for purchasing Russian crude oil. This blog intends to enquire how the H1B visa hike impacts the ongoing US-India tariff negotiations as well as their respective domestic political economies.
Immigration and Big Tech
High skill migration in the US has historically garnered bipartisan political support. The economic rationale was due to the perceived shortage of native workers with STEM (science, technology, engineering, and mathematics) skills. The US introduced H1B visas in 1990, allowing foreign workers to come to the US temporarily to fill these shortfalls. Big Tech firms, primarily in the computer technology industry, have benefited the most, leading them to influence Congress to expand the program continuously. The successive US administrations have been able to raise the number of annual visas issued well above the official ceiling.
US technical organisations like the IEEE-USA opposed the expansion, arguing that the National Science Foundation’s skill shortage claims were inflated. However, low union density among Big Tech employees and a lack of resources to make effective campaign donations in the US constrained their ability to engage in effective outside lobbying. After the 2008 Financial Crisis, both conservative and progressive citizen groups have successfully resisted any piecemeal immigration reforms, particularly focused on high-skilled jobs.
Although the new H1B premium delivered partial indemnity to opponents of piecemeal reforms, it has enraged US Big Tech. Trump hopes to use the H1B restrictions and tariffs to get a favourable trade deal with India. But timing is crucial – if the trade negotiations are not finalised before the next H1B deadlines, that is, by March 2026, there will be vociferous pushback from Big Tech and other business groups especially targeting the 2026 mid-term elections.
The Evolving India-US relationship
Indian outsourcing firms and software professionals have benefitted handsomely from the H1B scheme. These firms emerged in the mid-1980s as short-term staffing suppliers to US firms, primarily for low-value-added software activities. Later, the H1B scheme allowed them to establish a permanent presence in the US without significant dependence on native workers, effectively retaining their cost advantage. Furthermore, H1B has created an exit option for India’s crème de la crème seeking higher wages and better work conditions. As of 2023, three Indian software outsourcing companies feature among the top ten biggest sponsors of H1B visas, and 73% of the H1B visa holders are Indian citizens.
Over the past three decades, the India–US trade relationship has been marked by both cooperation and contention. The presence of a large Indian diaspora in the US has helped shed its Cold War era suspicions. As of 2023, the US remains India’s largest trading partner and the largest market for Indian software exports. It plays a crucial role in India’s balance of payment dynamics, where the software export earnings offset some of its current account deficits. However, a comprehensive free trade agreement remains a pipe dream. An informal trade policy forum established in 2005 continues to oversee bilateral trade relations, while repeated efforts to formalise the framework have failed to take off.
Agriculture – The Stumbling Block
One prominent bone of contention for a comprehensive trade deal is access to Indian agriculture markets. India historically has resisted opening agriculture markets to foreign producers, especially to subsidy-supported US agricultural products, citing phytosanitary concerns, religious sensitivity, and the use of GMO technologies. Unlike software professionals, farmers and agricultural labour form a significant voting bloc in India. Thus, any trade policy that threatens the interests of domestic agricultural producers will have major short-term and long-term electoral impacts.
India’s new ethanol policy also complicates the calculus for effective tariff negotiations. Grain surplus and other agricultural waste are India’s main inputs for ethanol production. The 2018 National Policy on Biofuels (NPB) intends to reduce import bills of petroleum products, fast-track its climate targets, and boost farmer income. NPB aims to achieve a twenty per cent ethanol blending in petrol used for transportation by 2025. The updated NPB of 2022 mandates using corn over traditional inputs like sugarcane and grain-based feedstock, which are water-intensive.
For decades, India was a net exporter of corn, but the increased demand from ethanol production has made it a net importer in 2024. As the world’s largest producer of both ethanol and corn, the United States is eager to see India remove tariffs and non-trade barriers to meet the growing demand. However, the Indian government prefers to support domestic ethanol production through tariffs to safeguard future energy security, especially after America’s punitive tariffs for purchasing Russian oil.
Policy Implications
- Although US tariffs and the H1B premium have forced India back to the negotiating table, the tight timeline for the US to secure a deal, especially before the next H1B filing, presents a risk of significant pushback from Big Tech and other business associations.
- India is unlikely to prioritise the H-1B interests of its software companies over the demands of its agricultural lobbies. However, the limited exit options available to its software professionals may fuel more organised resistance to the new labour code reforms the government seeks to implement.
- The Indian poultry industry is increasingly calling for an easing of importing US corn, as ethanol production has driven up domestic prices. As there are varying interests within the agricultural sector, it is pertinent for the government to design appropriate support to boost the competitiveness of domestic ethanol production while providing compensation for industries that will lose out from increased foreign competition.
Disclaimer: The opinions expressed in this publication are solely those of the author(s) and do not represent the views or positions of CISES, its leadership, or affiliated organisations
Further reading:
https://www-jstor-org.soas.idm.oclc.org/stable/24131745
https://doi-org.soas.idm.oclc.org/10.1177/0197918318769312
https://www.thecattlesite.com/news/trump-imposes-tariffs-as-us-india-farm-talks-stall