How India gains from new US trade agreement

New Delhi: India and the US have agreed on a framework for a trade deal under which Washington will bring down tariffs on Indian goods to 18 per cent from the current 50 per cent. The announcement is important because the US has imposed a steep tariff on Indian goods entering American markets, effective August 27, 2025.

According to sources, the target is for five years. India would be buying more oil and gas, technology items like advanced chips and data centres, precious metals and gems, aeroplanes and their parts. These purchases would be possible as even in aviation alone USD 100 billion orders are placed or are in pipeline.

Here is a list of key pointers to explain the announcement.

Tariff definition

These are customs or import duties which a country imposes on goods bought from other nations. An importer has to pay this duty to the government. Normally, companies pass on these taxes to end users or consumers.

Import duty makes goods expensive in the importing country. Besides, a few other factors also play a role in this. For example, duty on India’s competitor nations such as Bangladesh (20 pc), Vietnam (20 pc) and Thailand (19 pc); and quality and standards of items.

In August 2025, the US announced the imposition of a 25 per cent tariff plus another 25 per cent punitive duty for buying Russia’s crude oil and military equipment. These duties are imposed over and above the existing tariffs that the Indian goods are facing in the US.

The US has reduced the duty to 18 per cent. Prime Minister Narendra Modi has said that he was delighted that “made in India products will now have a reduced tariff of 18 per cent”.

Why US is imposing tariffs

The US has alleged that it faces a significant trade deficit with India, blaming New Delhi for imposing high tariffs on American goods, which it says restricts US exports to the Indian market.

“It was an Honor to speak with Prime Minister Modi, of India…We spoke about many things, including Trade…He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela.

“This will help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week! Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%.

“They will likewise move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO. The Prime Minister also committed to “BUY AMERICAN,” at a much higher level, in addition to over $500 BILLION DOLLARS of US Energy, Technology, Agricultural, Coal, and many other products,” Trump has said in a social media post.

Details of the deal

Under the pact, India is likely to eliminate duties on certain goods immediately, phase out duties on others, reduce duties in some sectors, and provide quota-based tariff concessions for select products. However, sensitive sectors like dairy and agri are completely out of the ambit of the pact.

An executive order from the US would provide greater clarity on the tariff issues, and a joint statement will outline the sectors covered under the agreement. Both are awaited.

What India gains from this deal

Labour-intensive sectors such as garments, leather and non-leather footwear, gems and jewellery, plastics, chemicals, carpets and handicrafts may get a boost as high tariffs were hurting exports of these goods to the US. They at present attract 50 pc tariffs. It will be reduced to 18 per cent.

Bilateral trade

During 2021-25, the US was India’s largest trading partner in goods. The US accounts for about 18 per cent of India’s total exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade. In 2024-25, the bilateral trade touched USD 186 billion (USD 86.5 billion exports and USD 45.3 billion imports).

With America, India had a trade surplus (the difference between imports and exports) of USD 41 billion in 2024-25. It was USD 35.32 billion in 2023-24 and USD 27.7 billion in 2022-23.

In services, India exported an estimated USD 28.7 billion and imported USD 25.5 billion, adding a USD 3.2 billion surplus.

Altogether, India ran a total trade surplus of about USD 44.4 billion with the US.

Major traded products between US-India

In 2024, India’s main exports to the US include:

• Drug formulations and biologicals (USD 8.1 billion)
• Telecom instruments (USD 6.5 billion)
• Precious and semi-precious stones (USD 5.3 billion)
• Petroleum products (USD 4.1 billion)
• Vehicle and auto components (USD 2.8 billion)
• Gold and other precious metal jewellery (USD 3.2 billion)
• Ready-made garments of cotton, including accessories (USD 2.8 billion)
• Products of iron and steel (USD 2.7 billion).

• Imports include:
• Cude oil (USD 4.5 billion)
• Petroleum products (USD 3.6 billion)
• Coal, coke (USD 3.4 billion)
• Cut and polished diamonds (USD 2.6 billion)
• Electric machinery (USD 1.4 billion)
• Aircraft, spacecraft and parts (USD 1.3 billion)
• Gold (USD 1.3 billion)

Services trade

As per estimates, US services imports from India amounted to USD 40.6 billion in calendar year 2024, with computer/information services imports at USD 16.7 billion and business management/consulting at USD 7.5 billion.

High tafiffs on competitor countries

Reduction of tariffs on India to 18 per cent will give a boost to labour intensive sectors as exporters will be able to price their products at competitive rates than their competitors in the US market. The major competitors include China, Vietnam (20 per cent), Malaysia (19 per cent), Bangladesh (20 per cent), Cambodia and Thailand (19 per cent each).