US President Donald Trump announced a trade deal with India yesterday that slashes US tariffs on Indian goods to 18% dismantling a punitive tariff regime on Indian goods exports that climbed to 50% last year. Washington had imposed 25% import tax on Indian goods as part of its Liberation Day tariffs, and an additional 25% – making it 50% – for India’s import of Russian oil as part of a steep escalation in trade tensions tied to India’s continued purchases of Russian oil.
The trade tension affected various facets of India’s technology partnership with the US. President Donald Trump even threatened to impose 25% tariff on Apple, if it sold India-made iPhones in the US. Apple has created a wide supply chain network in India to meet its manufacturing requirements. India currently accounts for nearly a quarter of all iPhones that are produced, behind China. The reduction in the tariff to 18% ceiling, slightly lower than Vietnam, India’s prime competitor in the electronics manufacturing will possibly enable India to take a larger share in Apple’s supply chain diversification strategy.
The announcement of the deal marks a significant shift in India-US trade policy following months of tariff driven trade tensions.
Reduced Tariff Ceiling: Projections and Potentials
The new deal, PM Modi predicted, will ‘unlock’ immense mutually beneficial opportunities paving way for India and US to cultivate the partnership to ‘unprecedented height’. However, India is yet to comment on the details of the agreed upon clauses including commitments related to Russian oil purchases or zero tariffs on US goods. In his Truth Social post, Trump said the agreement goes beyond tariff cuts. He described it as a concluded trade deal under which India would reduce its tariffs and non-tariff barriers against US goods to zero and commit to buying more than $500 billion worth of American goods. Trump also said that India has agreed to stop buying Russian oil and instead purchase more energy from the United States and potentially Venezuela.
The reduction in tariffs a week after the conclusion of India–EU trade agreement, potentially represents India’s successful move towards optimizing economic diplomacy in conducting foreign policy. The deal viewed as a "thaw" in relations, is expected to boost high-tech cooperation in quantum technology, robotics, space, electronics as well as semiconductors that had been slowed by previous trade tensions.
Reports predict a potential boost for India's electronics manufacturing sector with industry projections suggesting bilateral electronics trade to reach $100 billion as part of the broader $500-billion trade target between the two countries. India’s electronics industry stood at Rs 3.27 lakh crore (around $38 billion at current rates) in 2024-25, with the US being the largest market.
Overall, the trade deal offers a strong boost to export-oriented and manufacturing sectors. Reportedly the deal will also open Indian markets for the export of farm products from America. America’s agriculture trade deficit with India stood at $1.3 billion in 2024.
The announcement elicited positive response from top American leaders, who complimented the agreement for expanding America’s consumer market, reviving its security agenda in the Indo-Pacific, and strengthening India-US technology, agricultural, and energy ties. American leaders think the agreement will ease terms of US negotiation with Russia on many fronts including Ukraine.
US Ambassador to India has spoken about ‘limitless potential’ of India-US ties following the announcement of deal. Likewise Indian political leadership collectively welcomed the deal. Calling it a ‘good news’, Indian Finance Minister Nirmala Sitharaman complimented the benefit it is projected to carry forward for the people of both economies. Reacting to the possibilities of the benefits the deal might earn for India’s Information Technology Sector, Union IT Minister Ashwini Vaishnaw said, “US and India have complementary strengths. Both countries can co-create technologies and co-develop solutions that will benefit the world. A trade deal between the US and India will lead to a brighter future for both countries…. (it) is a win-win deal. Citizens and industries of both the countries will benefit greatly…”.
The trade deal removes wide ranging concerns about tariff uncertainty that had been weighing on Indian assets, opening the door for a return of foreign capital after record equity outflows in 2025 left the Indian rupee under sustained pressure. It has led to a major surge in Indian equities (Sensex and Nifty) and a strengthening of the Indian rupee.
Meanwhile American Depositary Receipts (ADRs) of Indian companies listed on the Nasdaq and New York Stock Exchange reported a jump on the Wall Street by up to 6.75% after the announcement set tone to a major improvement in bilateral economic ties.
Persisting Issues Require Positive Diplomacy
India-US ties touched a historical low last year followed by US President Donald Trump’s range of dismissive comments about Indian economy and high cap tariff regime. In the recent past India has diversified its diplomatic channels maintaining flexible ties with Russia and China while deepening agenda-based engagement in forums like BRICS, due to US behavior.
India’s pharmaceutical ties with the US underwent close scrutiny after the 2025 Special 301 report released by the Office of the United States Trade Representative (USTR) had put India on the "Priority Watch List" as one of the world's "most challenging major economies" regarding the protection and enforcement of intellectual property. The announcement of reduced tariffs ceiling to 18% ceiling led pharma and healthcare stocks to rise sharply. However, US reliance on Indian pharmaceutical sector might reduce with Trump’s insistence of boosting domestic pharmaceutical manufacturing sector. In such scenario, India will need to re-strategize its manufacturing- supply cycle beyond domestic consumer market.
India’s push for ‘Atmanirbhar Bharat’ to bolster domestic manufacturing and data sovereignty is a conflicted issue in the ambit of US tech interests and market access demands. The "Vocal for Local" campaign, intended to boost domestic production (e.g., PLI schemes), is viewed by the US as a form of protectionism that creates non-tariff barriers.
US periodic threats under Trump administration to restrict US H-1B visas, particularly intensified by 2025 reforms including a $100,000 fee for new applications remains a concerning issue in India-US bilateral. Indian nationals, who hold over 70% of H-1B visas, face heightened uncertainty due to record-long appointment wait times stretching into 2027. The "on-site" model, where Indian professionals work directly at US client locations, is being curtailed, forcing a shift to "remote" delivery models, in some cases, near-shoring to Canada or Mexico, to bypass high visa costs.
Irrespective of the difference, both sides continue to collaborate on high-tech initiatives like the TRUST Initiative and Quad. During Prime Minister Modi's visit to Washington in February 2025 the India-US Initiative on Critical and Emerging Technology (iCET) transitioned into a broader, upgraded framework known as the TRUST (Transforming the Relationship Utilizing Strategic Technology) initiative. The new initiative serves as a comprehensive roadmap for cooperation in defense, AI, semiconductors, and space, with high-level oversight continuing under the National Security Advisors of both nations.
In December 2025, the US signed the National Defense Authorization Act (NDAA) for Fiscal Year 2026, which mandates deeper engagement with India and the Quad to advance a free and open Indo-Pacific. The Act explicitly recognizes India as a key US ally and calls for integrating the defense industrial bases of Indo-Pacific partners, including Japan and Australia.
Interestingly, amid the ‘big’ announcement, India’s External Affairs Minister, Dr. S. Jaishankar happens to be on a three-day visit to attend a ministerial meet in the US. Days before his visit Dr. S. Jaishankar met US Ambassador Sergio Gor to discuss various facets of India-US ties including defense, trade, and critical minerals. During the ongoing visit, Dr. S. Jaishankar is slated to meet US Secretary of State Marco Rubio in Washington ahead of an inaugural ministerial meeting focused on supply chain resilience, clean energy transitions, and strategic cooperation in critical minerals. The scheduled meeting might claw out greater details of the proposed trade deal.
The deal is expected to give a boost to Indian textile, jewelry and leather sectors giving more competitive edge to its neighbors like Bangladesh and Sri Lanka. As two nations express their respective political willingness to deepen strategic partnership through this deal, the opportune moment can be used by both sides to address the persisting issues and irritants in their bilateral ties. The projected benefits of the deal, essentially India’s broader technological partnership will functionally play to the advantage of India’s neighbors in the subcontinent.
The views expressed above belong to the author(s).