New Delhi: Until President Donald Trump’s return to the White House on 20 January 2025, US tariffs were largely a non-issue for Indian exporters. That low-tariff environment ended in April 2025, when Washington imposed sweeping reciprocal duties, sending the US trade-weighted average tariff into double digits for the first time in decades.
A new trade deal now marks a partial rollback, with the US on Monday saying that tariffs on Indian goods will be cut to 18%—a shift after decades in which tariff barriers between the two countries were relatively modest.
“India-US trade deal will further expand and deepen trade between two of the largest economies of the world. It will create more opportunities for our labour-intensive and manufacturing sectors in the US market and give impetus to mutually-beneficial collaboration in high and advanced technology sectors,” said Arvind Shrivastava, secretary, department of revenue, ministry of finance.
Before the 2025 upheaval, official data show the average US customs duty on Indian imports stood at around 2.8%, broadly stable for decades, while US goods faced a weighted average tariff of 7.7% in India. In agriculture, Indian farm exports to the US faced a 5.3% duty, whereas US farm exports to India carried 37.7%. Industrial exports to the US faced just 2.6%, compared with 5.9% for American goods entering India.
India’s own average customs duty was reduced from 11.65% to 10.66% in the Union Budget for fiscal year 2026, signalling tariff moderation to trading partners. Commerce ministry data show import duties on several high-value American products are negligible. Petroleum crude, the US’s top export to India, attracts a token duty of just ₹1 per tonne, while coal, large aircraft and liquefied natural gas face a customs duty of 2.5%. The FY26 Budget also cut customs duty on motorcycles to 30% from 50%, a move expected to benefit US premium motorcycle maker Harley-Davidson.
Against this backdrop, questions remain about how the new US rate will be applied. While trade experts have welcomed the deal, there remains a lack of clarity on whether the 18% rate subsumes existing most-favoured-nation (MFN) tariffs or is levied over and above them. If applied on top of MFN duties, the effective tariff burden on Indian exports could rise 20–21%, analysts said.
Despite the policy shocks, trade flows between the two countries have remained resilient.
India’s merchandize exports to the US rose from $77.52 billion in FY24 to $86.51 billion in FY25, while imports increased from $42.20 billion to $45.63 billion, expanding total bilateral trade to $132.14 billion, as per official data. Exports held up even under high tariffs, rising to $7.01 billion in December 2025 from $6.98 billion in November. During April-December 2025, exports grew about 10% to $65.88 billion, with India recording a trade surplus of $26.45 billion.
Trade deal impact
Sectors hit hardest by previous trade hurdles are poised to benefit under the new deal.
In agriculture, Indian farm exports to the US faced duties of about 5%, while American farm products entering India carried tariffs of 37.7%. In automobiles, US vehicles faced average tariffs above 24%, while Indian autos entering the US faced barely 1%. Diamonds, gold, chemicals, pharmaceuticals, electricals, telecom and machinery showed similar patterns, with Indian goods encountering minimal US duties while American products were hit with significantly higher levies.
The only major exception was ores, minerals and petroleum, where Indian shipments faced 6.7% duty in the US.
What experts say
Rakesh Mohan Joshi, vice chancellor, Indian Institute of Foreign Trade, said, “It’s a win-win for both sides. If you look at it from the perspective of the earlier 50% tariff, and the 25% tariff threat linked to trade with Iran, bringing it down to 18% is a significant boost for Indian exporters and the economy.”
Joshi said it will also incentivize front-loading of shipments, as exporters rush to take advantage of the lower 18% tariff.
Saurabh Agarwal, Tax Partner at EY India, said, “With US tariffs earlier reaching 50%, Indian exporters were at a disadvantage compared to peers like Vietnam, Japan and Bangladesh, where effective tariffs were much lesser. The proposed reduction to 18% restores competitiveness and signals a more pragmatic approach to bilateral trade.”
Some, however, urged caution.
Bipin Sapra, Partner and Indirect Tax Policy Leader at EY India, noted that while a customs duty of 18% is a relief from the earlier 50% tariff for Indian goods imported in the US, it still is much higher than the duty before the discussion on tariffs got initiated last year. “The cost and demand would continue to be impacted though we would be relatively better than countries who have tariffs higher than 18%.”
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), also cautioned against premature celebration. “The Truth Social post leaves several critical questions unanswered, including which products are covered, what the timelines are, and whether India has indeed agreed to zero tariffs and zero non-tariff barriers, particularly in sensitive areas such as agriculture and regulated imports.”
He said that the $500 billion US purchase figure is more aspirational than a firm commitment. “Until there is a joint statement, negotiated text and clarity on enforcement, this should be seen as a political signal rather than a final deal. Caution, not celebration, is needed.”
Sectoral outlook
India's marine exports, which declined during April-November 2025, are expected to recover. Volumes fell to 201,501 metric tonnes from 236,061, and values slipped to $1.72 billion from $1.84 billion. “We are confident that with the conclusion of the trade deal and the lowering of tariffs to 18%, seafood exports from India to the US will recover and return to earlier levels,” said G. Pawan Kumar, president of the Seafood Exporters Association of India.
Rice exporters said the reduction would restore parity with competitors such as Thailand and Pakistan, whose shipments currently face tariffs of around 19%.
Ekram Husain, vice-president of the VAFA Fresh Vegetables and Fruits Exporters Association, said, “A reduction in US import tariffs could significantly boost India’s exports of fruits and vegetables. Lower duties would improve price competitiveness for Indian produce such as grapes, mangoes, bananas, pomegranates, onions and processed vegetables, helping exporters compete more effectively with suppliers from Latin America and South-east Asia. Such a move would also support Indian farmers.”
Textile exporters said the cut would also improve India’s cost competitiveness against peers such as Bangladesh and Vietnam.
“The India-US trade deal’s sharp tariff reduction from 50% to 18% provides India with a 2% cost advantage over competitors such as Bangladesh and Vietnam, significantly strengthening our global competitiveness,” said Rajeev Gupta, joint managing director, yarn and fabric manufacturer RSWM Ltd.
US orders make up nearly 28% of India’s textile exports, Gupta said, adding that combined with internal duty exemptions and a Budget that strengthens textile competitiveness and domestic value chains, the timing is ideal to accelerate exports, support jobs across MSME clusters and improve financial margins in the coming quarters.
Amitt Nenwani, managing director of Shivtek Spechemi Industries Ltd, said, “The immediate relief in landed costs allows us to aggressively capture market share from Chinese competitors while securing superior margins on long-term contracts. This isn't just a policy shift; it's our launchpad for 2026.”
Pankaj Chadha, chairman of the Engineering Export Promotion Council, added, “The reduced tariff will benefit most major engineering categories where India already has a strong footprint. Engineering goods exporters, especially MSMEs, are expected to benefit significantly, as they were among the worst affected by the steep 50% duty.”
Despite Section 232 duties on steel, aluminium, auto, and auto components remaining in place, lower US tariffs are expected to further support growth in engineering exports, which reached $14.68 billion in April–December 2025‑26, up about 5% from the previous year. Products such as machinery, pumps, compressors, electrical equipment, auto components, steel and aluminium items, industrial valves, and boilers are likely to gain a clear advantage in the US market.
“The US tariff cut to 18% on Indian goods provides Indian medical devices a competitive edge over Chinese counterparts, which face higher tariffs typically at 25% plus additional hikes, including 50-60% on some items such as respirators. Previously, India endured tariffs of up to 50% while China faced around 30%, but the new arrangement places India below China’s base rate, favouring India amid China-plus-one diversification,” said Rajiv Nath, forum coordinator, Association of Indian Manufacturers of Medical Devices.
Praveen Mittal, chairman of the Medical Device Export Promotion Council, said, “As the US is expected to get zero-duty access to the Indian market, we may also see high-end medical devices entering India at lower prices.”