India-US trade agreement: An explainer

US President Donald Trump has said that India and the US have agreed on a trade deal under which Washington will bring down reciprocal tariff on Indian goods to 18 per cent from the current 25 per cent.               

The announcement is important as the US has imposed a steep 50 per cent tariffs on Indian goods entering American markets from August 27, 2025. 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.

USA’S tariffs on India: In August 2025, the US announced to impose 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.

Trump’s  announcement: “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 per cent to 18 per cent.

“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:  No details are available so far. An executive order from the US may provide clarity on the tariff issues, the trade deal document is expected to outline the sectors covered under the agreement. Both are awaited.

Gains for India: Labour-intensive sectors such as garments, leather and non-leather footwear, gems and jewellery, carpets and handicrafts may get a boost as high tariffs were hurting exports of these goods to the US.

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 $186 billion ($86.5 billion exports and $45.3 billion imports).With America, India had a trade surplus (the difference between imports and exports) of $41 billion in 2024-25. It was $35.32 billion in 2023-24 and $27.7 billion in 2022-23.In services, India exported an estimated $28.7 billion and imported $25.5 billion, adding a $3.2 billion surplus.Altogether, India ran a total trade surplus of about $44.4 billion with the US.Major products traded between the two:  In 2024, India’s main exports to the US included drug formulations and biologicals ($8.1 billion), telecom instruments ($6.5 billion), precious and semi-precious stones ($5.3 billion), petroleum products ($4.1 billion), vehicle and auto components ($2.8 billion), gold and other precious metal jewellery ($3.2 billion), ready-made garments of cotton, including accessories ($2.8 billion), and products of iron and steel ($2.7 billion).

Imports included crude oil ($4.5 billion), petroleum products ($3.6 billion), coal, coke ($3.4 billion), cut and polished diamonds ($2.6 billion), electric machinery ($1.4 billion), aircraft, spacecraft and parts ($1.3 billion), and gold ($1.3 billion).

Services trade:  As per estimates, USA’s services imports from India amounted to $40.6 billion in calendar year 2024, with computer/information services imports at $16.7 billion and business management/consulting at $7.5 billion.

High tariffs in US: As per reports, the US imposes high duties on items like dairy products (188 per cent), Fruits and vegetables (132 per cent), Coffee, tea, cocoa and spices (53 per cent), Cereals and food preparations (193 per cent), Oilseeds, fats and oils (164 per cent), beverages and tobacco (150 per cent), Minerals and metals (187 per cent), and Chemicals (56 per cent).

Comments of experts on India-US trade deal: EPC (Apparel Export Promotion Council) Chairman A Sakthivel: This development is expected to give a boost to apparel exports, attract fresh investments across the value chain, and reinforce India’s position as a reliable global sourcing hub.  

Federation of Indian Export Organisations (FIEO) President SC Ralhan: It is expected to lead to an immediate and substantial release of orders that were earlier put on hold, particularly in labour-intensive sectors such as apparel, textiles, leather and footwear.