Introduction
As for The United States President Donald J. Trump 'Tariff' is the most beautiful word in the dictionary, and so under his tenure he has unveiled a bold reciprocal tariff system, transforming global trade dynamics to address the $1.2 trillion goods trade deficit noted in 20241. Announced on April 2, 2025, these reforms establish a 10% baseline tariff on all imports, accompanied by additional country-specific tariffs that range from 15% to 50%.2By July 2025, the US has successfully concluded trade agreements with six nations namely United Kingdom, China, Vietnam, and Indonesia, EU and Japan while sending tariff notification letters to more than 20 countries, including South Korea, Canada, Brazil, and Mexico, with rates set to take effect on August 1, 2025.India, currently excluded from these notifications, is on the edge to finalise an interim Bilateral Trade Agreement (BTA) by the same deadline, aiming for tariffs under 20%.With bilateral trade hitting $190.08 billion in 2023 and aiming to achieve $500 billion by 2030, these advancements present Indian exporters with a distinctive chance to enhance their presence in the US market3.This article delves into the US tariff reforms, the status of India-US trade discussions, completed agreements, tariff notifications and broadened opportunities for Indian exporters along with strategic suggestions to optimise benefits for both the countries.
USA Tariff reforms: Reciprocal Tariff Framework
President Trump's tariff strategy, implemented under the International Emergency Economic Powers Act (IEEPA) on April 2, 2025, focuses on non-reciprocal trade practices such as high tariffs, currency manipulation, and value-added taxes (VAT) imposed by trading partners4.The United States imposes a 3.3% Most-Favoured-Nation (MFN) tariff, which is considerably lower than the global average of 7.5% - 17%, leading to a 10% base tariff on all imports and additional duties, including a proposed 26% tariff on Indian goods, which has been suspended until August 1, 2025, to promote negotiations.Specific tariffs consist of 50% on steel and aluminium, 25% on automobiles, and a suggested 50% on copper, all intended to safeguard US industries.
The United States has established trade agreements with six countries: the United Kingdom, which has secured lower tariffs on cars, steel, and aerospace equipment at a 10% baseline, China, which has reduced tariffs from 145% to 30% in return for reduced Chinese duties, Vietnam, with a 20% tariff and Indonesia, with a 19% tariff linked to $15 billion in US energy purchases, $4.5 billion in agricultural goods, and 50 Boeing jets. The United States and the European Union reached a trade agreement on July 27, 2025, imposing a 15% tariff on the majority of EU products, including automobiles, while excluding aircraft, generic medications, and essential raw materials.The EU committed to purchase $750 billion in US energy and invest $600 billion over a span of three years, thus preventing a transatlantic trade conflict.This agreement highlights the US's aim for reciprocal trade, impacting India's negotiations by establishing a benchmark for tariff reductions.On July 22, 2025, the US and Japan finalised a trade agreement, introducing a 15% tariff on Japanese exports, including vehicles, reduced from a previously proposed 25%.Tariff letters being sent to over 20 nations, including South Korea (25%), Canada (35%), Brazil (50%), and Mexico (30%), pressure these countries to negotiate more equitable terms.The exclusion of India from these letters indicates a favourable stance in ongoing discussions.
Trade Negotiations: Progress and Prospects
India and the United States are making progress towards an interim Bilateral Trade Agreement (BTA) before August 1, 2025, as the fifth round of discussions wrapped up on July 17 in Washington, D.C5.The negotiations,spearheadedby India's chief negotiator Rajesh Agrawal and Assistant US Trade Representative Brendan Lynch, are centred around agriculture, automobiles, and Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET).India aims to abolish the 26% tariff and lower the existing duties on steel (50%) and automobiles (25%), while the US is seeking increased market access for industrial goods, electric vehicles, wines, petrochemicals, and agricultural products, including dairy, apples, and genetically modified crops.India has stood firm against concessions on agriculture and dairy, prioritising the importance of food security and the welfare of small farmers, with domestic farming groups advocating for the exclusion of these sectors.In a strategic proposal during the July 2025 discussions, India suggested cutting tariffs by up to 50% on certain US goods, such as motorcycles, bourbon, and walnuts, to break the deadlock on agricultural matters and achieve reduced US tariffs on Indian exports.This concession is intended to foster goodwill and accelerate the establishment of a favourable interim BTA, potentially limiting tariffs on Indian goods to 15 - 20%.The absence of a tariff letter to India, in contrast to the 20+ countries that have been notified, signifies progress toward reaching an agreement.President Trump has indicated that a deal is imminent, with tariffs on Indian goods possibly reducing to 15 - 20%, which aligns with the rates for Indonesia (19%) and Vietnam (20%).India's consumer-driven economy, where exports to the US account for only 18% of its total goods exports, in comparison to Vietnam (87% of GDP) or Thailand (65%), provides the country with leverage to resist unfavourable conditions while obtaining preferential access in labour-intensive industries such as textiles, gems and jewellery, leather goods, and pharmaceuticals6.
Opportunities for Indian Exporters
The recent US tariff reforms and ongoing negotiations create a favourable environment for Indian exporters, especially since increased tariffs on competitors such as China (34%), Vietnam (46%), and Bangladesh (37%) boost India's competitiveness across 22 of the leading 30 Harmonised System-2 (HS-2) product categories, according to NITI Aayog's report from July 20257.India's exports to the US experienced a growth of 22.18% in the April–June 2025 period, with a striking 23.53% increase year-on-year in June, solidifying the US's status as India's primary export market.8Key sectors anticipated to grow include:
- Pharmaceuticals: Being exempt from the 26% tariff, India's pharmaceutical exports to the US, valued at $8.73 billion in 2024 and comprising 31.35% of its $27.82 billion of its total pharma exports, benefit from significant demand for affordable generics. Increased tariffs on China further enhance India's competitive advantage in this vital sector.
- Textiles and Apparel: With $4.65 billion in exports of readymade garments to the US in 2024, reduced tariffs through the BTA could stimulate demand for Indian garments and fabrics, particularly as Bangladesh contends with a 37% tariff, which reduces the competitiveness.
- Gems and Jewellery: Estimated at $7.72 billion in 2024, this sector could benefit from tariff reductions that could narrow the 13.3% tariff gap with competitors like Hong Kong, thus increasing market share.
- Electronics and Automobiles: Exports valued at $13.7 billion in 2024 are subject to tariff uncertainties, but an agreement limiting rates to 15 - 20% may alleviate cost pressures and foster growth in these high-value sectors.
- Shrimp and Seafood: As the largest supplier of shrimp to the US, India's exports reached $2.4 billion in 2024, accounting for 40% of US shrimp imports.A favourable trade agreement could potentially reduce tariffs from the current 2.5% to zero, thereby improving competitiveness against Ecuador (10% tariff) and boosting export volumes.Agricultural Products: India's exports of processed foods, spices, and tea ($1.5 billion in 2024) could gain from lower tariffs, especially as the US aims to diversify its supply chains away from competitors like China and Vietnam.
A successful interim BTA could decrease tariffs to 15 - 20%, enhancing India's market access and facilitating its integration into US supply chains.The tariff differential reinforces India's stance against regional competitors, while governmental initiatives such as the Production Linked Incentive (PLI) scheme in sectors like semiconductors, renewable energy, and aircraft components attract US investment, furtherstrengtheningexport growth.
US benefits from Trade Reforms
The trade discussions between India and the United States, along with US tariff reforms, provide considerable economic and strategic benefits for the United States, enhancing market access, ensuring supply chain stability, and geopolitical alignment.A concluded interim BTA, which may limit tariffs to 15–20%, allows US companies to access into India's $1.6 trillion consumer market, facilitating the export of industrial goods, electric vehicles, wines, and agricultural products such as apples and dairy, potentially alleviating the $46 billion trade deficit that the US has with India as of 2024.India's reliable supply of $9 billion in pharmaceuticals (accounting for 30% of US generic drugs) and $2.4 billion in shrimp (representing 40% of US imports) helps stabilize prices and diversifies US supply chains away from competitors like China, thereby improving consumer affordability and food security.India's Production Linked Incentive (PLI) programs in sectors like semiconductors, renewable energy, and aerospace draw US investments, including collaborations with Boeing, which support job creation and contribute to the $70.65 billion in US investments in India from 2000 to 2025.From a strategic standpoint, a strengthened US-India trade alliance counters China's trade dominance, aligning with US objectives for diversified sourcing and enhanced economic resilience.
Challenges and Risks
The proposed 26% tariff poses a threat to 87% of India's $66 billion exports to the US, particularly impacting the pharmaceuticals, automotive, and shrimp industries, which collectively account for $13.4 billion.The inability to finalize an interim agreement could lead to increased expenses, diminished demand, and disruption of supply chains.India's Quality Control Orders (QCOs), intended to limit substandard imports, have faced US criticism as non-tariff barriers, complicating the negotiation process.Imposing retaliatory duties on US imports such as apples and almonds, permitted under WTO regulations, could heighten tensions if discussions break down.Uncertainties in global trade, including China's 34% retaliatory tariffs and trilateral dialogues involving China, Japan, and South Korea, may indirectly impact India's export competitiveness.HSBC predicts that a 26% tariff could lower India's GDP growth by 0.5 percentage points, while Citi Research anticipates annual losses reaching $7 billion9.
Economic and Strategic Implications
The trade discussions between India and the US, along with the reforms to US tariffs, present India with an opportunity to reinforce its presence in the American market while also providing advantages to US consumers and industries.An effective interim agreement that limits tariffs to between 15% and 20% could improve India's competitive edge against competitors such as China and Vietnam, leading to increased bilateral investments totalling $70.65 billion from 2000 to 2025.By focusing on labour-intensive industries and broadening its market reach, India has the potential to reduce risks and enhance its presence in global trade.For the US, gaining greater access to the Indian market and ensuring a reliable supply of essential products like shrimp and pharmaceuticals contribute to economic stability and meet consumer demands.
Final word and Recommendations
In light of the August 1, 2025, tariff deadline, exporters should strategically manage their inventory and orders to mitigate exposure to potential cost increase.The Ministry of Commerce's upcoming online platform for monitoring export restrictions, as reported by India Briefing, will offer real-time insights, allowing exporters to adapt their supply chains swiftly.Postponing shipments until tariff clarity is achieved is a sensible strategy for navigating uncertainties, ensuring cost efficiency.Investing in domestic manufacturing capabilities is crucial for enhancing competitiveness and resilience.NITI Aayog's July 2025 report recommends increasing sectoral integration in electronics, auto components, and seafood processing to lessen dependence on imported inputs and fulfil US market demands for high-quality, sustainable products.By utilising PLI schemes, exporters can boost production in high-value sectors like pharmaceuticals and renewable energy, ensuring cost efficiency and supply chain stability.
The US tariff reforms for 2025 and the ongoing trade talks between India and the US represent a crucial juncture for their economic relationship, laying the groundwork for shared prosperity.With the US finalising trade deals with six countries, including Japan and the EU, India's advantageous position strengthened by its proposal for tariff reductions and its exemption from tariff letters prepares the way for a ground-breaking interim Bilateral Trade Agreement (BTA).This pact is set to enhance collaboration between the US and India, leveraging India's strong export industries and extensive consumer market to stimulate innovation, stabilise global trade frameworks, and provide a counterweight to regional competitors.By aligning their economic priorities ahead of the August 1 deadline, both countries can build a robust partnership that not only tackles the US trade deficit but also promotes sustainable growth and geopolitical stability.
Footnotes
1 The White House. (2025, April 3).Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits.
2 Regulating imports with a reciprocal tariff to rectify trade practices that contribute to large and persistent annual United States goods trade deficits. (2025, April 7). Federal Register.
3 Bao, A. (2025, February 14).U.S. and India to double bilateral trade in five years, Prime Minister Modi says, as Trump tariffs loom. CNBC.
4 The White House. (2025a, April 2).Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security.
5 Press Trust of India & Business Standard. (2025, July 22). India, US complete 5th round of talks for trade pact: MoS Jitin Prasada.
6 ibid.
7 Bery, S. K., Sahoo, P., NITI Aayog, Singh, H. V., Sarangi, S. K., Krishna, P., Chanda, R., Mishra, D., Joshi, R. M., Mukherjee, A., Nedumpara, J. J., Banerjee, P., Veeramani, C., Kathuria, S., Nag, B., & Chakraborty, D. (2025). Trade Watch October-December (Q3) FY25 [Quarterly Report].Trade Watch Quarterly.
8 The cumulative exports (merchandise & services) during April-June 2025 is estimated at US$ 210.31 Billion, as compared to US$ 198.52 Billion in April-June 2024, an estimated growth of 5.94%.(n.d.).
9 Online, E. (2025, March 6). Trump's April 2 threat to India may cost $7 billion a year.The Economic Times.
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