India-US Trade Deal Explained: Background, Tariff Cuts, and Impact on Exporters

In what comes as a major surprise, India and the United States signed a significant trade agreement that marks a turning point in bilateral trade relations between the two nations. After months of uncertainty caused by high tariff rates, the new trade deal aims to lower import duties and open fresh opportunities for exporters and importers in both countries.

For Indian exporters, especially those targeting the US market, this agreement has given them a major boost and revived demand that had earlier slowed down due to trade tensions.

Having said this, it remains to be seen when this trade deal actually take effect and how quickly the revised tariff structure will be implemented on the ground, as exporters and buyers closely watch.

Background: Why Trade Relations Became Strained?

Before the new agreement, India-US trade relations were under pressure prominently due to sharp tariff increases imposed by the United States. In August 2025, the US raised import duties on Indian goods to an unprecedented level of 50%, from an earlier rate of 25%, making many Indian products heavily priced in the American market.

This sudden increase in import duties disrupted the entire supply chains and caused Indian exports to the US to decline sharply across several key sectors.

Understanding the 50% Tariff Structure

The 50% tariff was not added all at once. It happened in two steps.

At first, the United States applied a 25% tariff on certain goods coming from India. This was part of its broader trade policy and affected many countries, not just India.

Later, an additional 25% tariff was added on top of the existing one for some Indian products. This second tariff acted like a penalty, making Indian goods much more expensive in the US market.

When both tariffs were applied together, the total duty reached 50%.

This higher cost made it harder for Indian exporters to sell their products in the US and created a lot of confusion and uncertainty in trade.

The Role of Russian Oil in the Tariff Dispute

The primary reason for the additional tariff rates by the US was India’s continued purchase of discounted Russian oil. The US believed that buying Russian oil was indirectly helping Russia fund its war in Ukraine and went against broader Western sanctions.

To pressure India to change this behaviour, the US decided to punish Indian exports by adding an extra 25% duty on top of the existing tariff.

This move was meant to send a strong message, not just affect trade.

As a result, Indian products became more expensive in the US, and exports from India slowed down.

Impact of High Tariffs on Indian Exports

The 50% tariff made Indian products too costly for many US buyers.

Because of this, the US importers started importing from countries like Vietnam and Bangladesh, which offered them goods at a comparatviely cheaper rates than India.

As orders moved away from India, many exporters lost customers and long-term business.

Industries such as textiles, seafood, engineering goods, and agricultural products were affected the most.

How the New India–US Trade Deal Came Together

After months of trade tensions, both India and the United States began talks to ease the situation.

The breakthrough came after a direct phone conversation between US President Donald Trump and Indian Prime Minister Narendra Modi, where both leaders agreed that the prolonged tariff disputes were hurting businesses in both countries.

Hence, a trade agreement was agreed upon that would reduce duties, improve cooperation, and restore confidence among exporters and importers, thus laying the foundation for the new India–US trade deal and helping reset trade relations between the two nations.

India’s Key Commitments Under the Deal

As part of the trade agreement, India agreed to make several important changes.

Halt On Russian Oil Purchases

One of the biggest commitments was to stop purchasing discounted oil from Russia, which had been a major point of concern for the United States.

Increase in Imports from the US

India also agreed to increase its purchases from the US, committing to purchases worth over $500 billion. especially in areas like energy, technology, and agricultural products.

Lower Trade Barriers

India also reportedly agreed to lower trade barriers by reducing its own tariffs and non-tariff barriers on US goods, which could lead to near-zero duties on several American products entering the Indian market.

These commitments played a key role in strengthening trade ties and balancing trade between the two countries, because, at present, America has a trade deficit with India.l.

India’s Gain In The US Trade Agreement

The biggest benefit for India is the major cut in US tariffs on Indian exports.

Import duties have been reduced from 50% to 18%, making Indian products much more affordable in the US market.

This has led to improved profit margins and made exporting viable again.

As a result, many exporters who had slowed down or stopped shipments are now feeling confident to resume business with US buyers.

How the New 18% Tariff Was Achieved

The reduction in tariffs happened through two major changes:

• First, the US removed the extra 25% penalty that was linked to India’s purchase of Russian oil.

• Second, the original tariff rate was cut from 25% to 18%.

Together, these steps brought down the total duty on Indian goods and made exports to the US more affordable.

India’s Competitive Position After the Deal

At an 18% tariff rate, India is now better positioned than many neighbouring countries.

China still has high tariffs of 34–37%, Vietnam and Bangladesh around 20%, and Pakistan about 19%.

Having said this, India’s tariff rate is still higher than those applied to the UK or the European Union, but the improvement gives Indian exporters a strong edge amongst its asian competitors.

Indian Sectors Set to Benefit the Most

The tariff reductions are expected to give a major boost to several key Indian industries.

The textiles and apparel sector stands to gain significantly, as lower tariffs help Indian products become more affordable and competitive in the US market, leading to higher export orders.

The gems and jewellery sector will also benefit, as reduced trade costs improve profit margins and make Indian exports more attractive to international buyers. 

Other sectors such as engineering goods, electronics, leather, chemicals, and automobiles are likely to see improved export performance.

Boost for Seafood and Agricultural Exports

India’s seafood industry, especially shrimp exporters, is expected to witness strong growth as tariff reduction will lead US importers to return to Indian suppliers, thus stabilising export volumes.

Agricultural exports such as rice are also set to benefit. Restored price parity with other exporting countries makes Indian rice more appealing in the global market. Higher exports will directly support farmers, processors, and logistics providers linked to agricultural trade.

US Industries That Benefit From the Agreement

The agreement is not one-sided and offers significant advantages to the United States as well. 

The US energy sector emerges as a major beneficiary, as India increases imports of oil and coal. This supports American energy producers while helping reduce the US trade deficit with India.

US farmers also gain improved access to India’s large and growing consumer market. Increased agricultural exports can help narrow the trade deficit, which was more than $1billion in 2024.

Gains for US Technology and Strategic Sectors

Beyond energy and agriculture, US industries such as defense, aircraft manufacturing, technology, pharmaceuticals, and telecommunications are expected to benefit from improved market access.

The agreement strengthens long-term sourcing, investment, and technology partnerships between the two nations.

What This Deal Means for Exporters?

For Indian exporters, the trade deal helps restore lost competitiveness in the US market. Lower tariffs make Indian products more attractive compared to those from China and ASEAN countries. 

The agreement also reduces uncertainty and allows exporters to plan long-term shipments with confidence. As trade relation improves, Indian exporters are likely to see higher order volumes in the coming months

For US exporters, the agreement opens up stronger access to one of the world’s fastest-growing major economies.

With a consumer base of nearly 1.4 billion people, India presents long-term opportunities across agriculture, energy, technology, and industrial goods, thus encouraging US companies to expand exports and build deeper partnerships in India.

Conclusion

The India-US trade deal represents a major reset in bilateral trade relations. By reducing tariffs, addressing geopolitical concerns, and expanding market access, the agreement creates a more stable and predictable environment for exporters in both countries.

In the long run, this deal is expected to strengthen economic ties, boost trade volumes, and support growth across key industries in India and the United States.