- US cuts tariffs on Indian goods to 18% from 50%, easing trade tensions significantly
- The tariff cut follows India's agreement to reduce Russian oil purchases
- India's exporters gain cost advantage in key sectors like textiles and pharmaceuticals
In a major breakthrough for bilateral trade, the United States on Monday slashed tariffs on Indian goods to 18 per cent, down from the previously effective rate of 50 per cent. The decision, announced by US President Donald Trump following a call with Prime Minister Narendra Modi, marks the most significant easing of trade tensions between the two countries in over a year. The announcement triggered a strong market rally, with India's benchmark indices jumping close to three per cent on Tuesday.
The tariff cut is part of a broader trade understanding in which India is expected to scale back purchases of Russian oil while the US rolls back punitive layers of duties linked to those purchases. Modi publicly welcomed the tariff reduction, noting that "Made in India products will now have a reduced tariff of 18 per cent".
Why The Tariff Cut Matters
The US had previously imposed a 25 per cent reciprocal tariff on Indian goods and an additional 25 per cent duty in response to India's continued purchases of discounted Russian crude, taking the effective tariff burden to 50 per cent. With the punitive surcharge now withdrawn and reciprocal tariffs lowered, the overall levy stands at 18 per cent.
This steep reduction gives Indian exporters an immediate cost advantage in the world's largest consumer market, especially in sectors such as textiles, apparel, seafood, pharmaceuticals and engineering goods.
Where India Stands Among US Trading Partners
With the recalibrated tariff rate, India strengthens its position among America's major trading partners. By comparison:
- The European Union holds a 19 per cent share of US trade with an average tariff near 15 per cent.
- Mexico and Canada face significantly higher duties of around 30-35 per cent on key categories.
- China, once dominant, continues to be weighed down by a 34 per cent tariff amid ongoing geopolitical tensions.
Further down, economies like Taiwan, Japan, Vietnam and South Korea each hold a 4 per cent share but face varying tariff regimes, from 15 per cent to 25 per cent, depending on sectoral sensitivities. Meanwhile, Switzerland bears one of the steepest duties at 39 per cent, while the UK sits in the lower band at 10 per cent.
India's reduced 18 per cent tariff now positions it more favourably than regional competitors such as Vietnam, Indonesia and Bangladesh, improving India's prospects in US-linked supply chains.
India's Top Export Markets: A Shifting Landscape
India's export profile in 2025-26 shows the US as its largest market, followed by the UAE and key European economies. China, despite being India's third-largest export partner, recorded the strongest growth among the top destinations in FY26. Meanwhile, shipments to Singapore and the Netherlands weakened due to softer global demand.
On the import front, China remained India's largest supplier, followed by the UAE, Russia and the US. But notable shifts were visible: imports from Russia, Iraq and Switzerland declined, while Hong Kong, Japan and Singapore showed sharp increases.
These opposing export-import trends indicate India's trade relationships are diverging, with export growth led primarily by the US and China, while imports are driven by Asian and Middle Eastern partners.
India-US Trade Over The Years: A Decade Of Growth
Despite recent tariff tensions, India-US trade has expanded steadily over the past decade.
India's exports to the US rose from $42.2 billion in FY17 to a peak of $86.5 billion in FY25, before moderating to $59 billion in FY26.
Imports increased from $22.3 billion in FY17 to $35.4 billion in FY26.
India has maintained a trade surplus with the US throughout this period, recording its highest in FY25 at $40.9 billion.
Primary export categories to the US include electrical machinery, pharmaceuticals, engineering goods, jewellery and mineral fuels.
Imports are dominated by mineral fuels, precious metals, high-end machinery, medical instruments and a variety of industrial chemicals.
Market Reaction: A Strong Vote Of Confidence
Indian markets skyrocketed on the first trading session after the announcement. The Nifty 50 surged nearly three per cent, while sectoral indices tied to export-heavy industries, including textiles, engineering and specialty chemicals - outperformed the broader market. Analysts say the tariff relief could serve as one of the strongest external growth drivers for India in 2026, especially when combined with the recently concluded India-EU trade agreement.
