By Bill Spindle and Courtney McBride 

NEW DELHI -- After more than a decade of growing ties, the U.S. and India have suddenly hit a rough patch that will test Washington's efforts to cultivate the world's largest democracy as a critical counterweight to China.

A visit to New Delhi by the top U.S. diplomat and a meeting between the two nations' leaders this month will determine whether one of the most important relationships for both countries stays on track, according to analysts and officials on both sides.

On Sunday, India imposed import tariffs on $220 million of U.S. products, including walnuts, apples and lentils. The move was widely seen as retaliation for U.S. tariffs put on aluminum and steel from India last year and the U.S. removal this month of special benefits on some Indian exports. Those actions stemmed from long-running U.S. frustration that India hasn't opened its markets to more American agricultural and manufactured goods.

Though the tariff tit-for-tat doesn't approach the scope of President Trump's trade fights with China, Mexico or Canada, the U.S. has a substantial trade deficit with India -- $21.3 billion last year, a leap from $8 billion a decade earlier, though down from $24.4 billion and $22.9 billion in 2016 and 2017, respectively.

In Trump administration debates about whether trade deficits should be addressed as part of a wider relationship or take priority even if other parts of the relationship suffer, Mr. Trump has often come down on the side of trade.

"The president has been known to be in the latter category, so people better fasten their seat belts, the relationship could be in for a bumpy ride," said Tanvi Madan, director of the India Project at Brookings Institution, a think tank in Washington, D.C.

Other irritants in the relationship include U.S. pressure on India to stop buying oil from Iran and reverse a decision to purchase a Russian-made antimissile system.

Indian leaders are dismayed over U.S. demands that they snub Iran, an important source of its oil, as part of the U.S. effort to pressure Iran. And Indian officials said they would purchase the Russian S-400 system even if the Trump administration imposes sanctions as it has threatened to do.

India halted imports of oil from Iran and Venezuela and made no new purchases from Iran since the May 2 expiration of waivers the U.S. had granted, India's ambassador to the U.S., Harsh Shringla, said on May 23.

Compliance with the U.S. policy "comes at a cost" to India, which needs to find alternative sources of energy, Mr. Shringla said. India was purchasing 10% of its total crude oil supply from Iran, he said.

Both sides said they are looking toward the visit of Secretary of State Mike Pompeo to New Delhi next week and a meeting between Mr. Trump and Prime Minister Narendra Modi on the sidelines of the G-20 summit of global leaders shortly after that to keep the relationship on a fast growth track.

"We are not in a state of trade-war with the U.S.," said an Indian official involved in planning for the meetings. "We are instead looking to boost our bilateral trade."

To do that, and overcome or at least live with the irritants, both sides plan to focus on continuing to expand the military and security relationship. India and the U.S., once testy and standoffish, have developed a growing strategic partnership since a 2005 deal that lifted sanctions the U.S. had imposed when India staged nuclear weapons tests in 1998.

Since the 2005 deal, the two countries have steadily expanded military and security cooperation to the point where the U.S. military last year renamed its Pacific operations the Indo-Pacific command. It was a nod to India's critical place in U.S. military strategic thinking in the region.

In recent years, the countries have signed agreements that allow India to step up purchases of U.S. defense equipment and work more closely with the U.S. military in exercises and operations. A third major agreement that would allow even more cooperation is now being negotiated.

The two countries have signed defense contracts totaling $15 billion since 2008, compared with $500 million for all previous years combined, according to an April report from the Congressional Research Service, a research agency for the U.S. Congress.

The report says the major anticipated sales include 24 MH-60 Seahawk multirole naval helicopters and a potential commercial sale of AH-64 Apache attack helicopters. Lockheed Martin Corp. of the U.S., the world's largest defense contractor by sales, has proposed to make India the home for construction of its F-16 combat aircraft as part of India's efforts to upgrade its military.

"The U.S. seems to be pushing India to not let irritants on those fronts hijack the rising tempo of strategic ties," said Kashish Parpiani, a research fellow at the Observer Research Foundation, a New Delhi-based think tank.

Mr. Pompeo said he and Indian leaders may "broach some tough topics" during his visit, but the countries raise their disagreements "honestly and fairly" and work though them, in a speech last week to the U.S.-India Business Council in Washington.

He highlighted the expansion of trade between the two nations and suggested energy as an avenue for economic cooperation, saying it would increase stability in India. The U.S. has become a major oil and natural gas exporter in recent years, while India is one of the world's biggest energy importers.

Mr. Pompeo will meet with Mr. Modi, and with a new top Indian diplomat, External Affairs Minister Subrahmanyam Jaishankar, a former ambassador to the U.S. whom Mr. Modi appointed when he started his second term in office after his party dominated recent elections. Mr. Jaishankar is seen as a strategic thinker who has worked closely on U.S.-India issues in the past.

In his speech, the secretary of state noted Mr. Jaishankar as strong partner.

"We want to move ahead," Mr. Pompeo said.

--Krishna Pokharel and Rajesh Roy contributed to this article.

Write to Bill Spindle at bill.spindle@wsj.com and Courtney McBride at courtney.mcbride@wsj.com

(END) Dow Jones Newswires

June 17, 2019 14:19 ET (18:19 GMT)

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