Tariffs cut to 18%, $30 trillion market opens: India–US trade framework explained

India and the United States issued a joint statement on Saturday, announcing the finalisation of a framework for an interim trade agreement. Under the new trade deal, tariffs on Indian goods will decrease from 50 per cent to 18 per cent. This framework marks a formal breakthrough after almost a year of negotiations between the two nations.

Union Commerce and Industry minister Piyush Goyal shared a joint statement on social media, highlighting the market access the new framework could provide. He stated that under Prime Minister Narendra Modi's leadership, India had established a framework for a temporary agreement with the US that would open a $30 trillion market for Indian exporters.

"The US and India are pleased to announce that they have reached a framework for an Interim Agreement regarding reciprocal and mutually beneficial trade," the statement said.

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'Deal will benefit MSMEs, fishermen, farmers...'

"Under the decisive leadership of PM @NarendraModi ji, India has reached a framework for an Interim Agreement with the US. This will open a $30 trillion market for Indian exporters, especially MSMEs, farmers and fishermen. The increase in exports will create lakhs of new job opportunities for our women and youth, said Goyal on X.

Goyal noted that the deal would primarily benefit MSMEs, farmers, and fishermen. He also added that increased exports would create lakhs of new job opportunities for women and youth.

Trump removes 25% penalty tariff

At the same time, President Trump signed an executive order that removed a 25 per cent tariff on India. The order he signed repeats his claim that India has "committed" to stopping oil imports from the Russian Federation "directly or indirectly". It also states that India has agreed to buy energy products from the United States.

Both countries have held several trade talks over the past few months, as discussions came to a halt after the US imposed 50 per cent tariffs on Indian imports. This included a 25 per cent duty that started in August, with the US claiming that India was aiding Russia's war efforts against Ukraine by making purchases.

Top takeaways from deal

Reduction of tariffs imposed by the US on imports from India: The United States will reduce tariffs on import of Indian products to 18 per cent across multiple product categories, including textile and apparel, leather and footwear, plastics and rubber products, organic chemicals, home decor, artisan products and certain machinery. After the successful completion of the agreement, the US will also eliminate tariffs on numerous Indian goods, including generic pharmaceuticals, gems and diamonds and aircraft parts.

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Tariffs on US goods: India will eliminate or lower its tariffs on all US industrial products as well as many food and agricultural items, including dried distillers' grains, red sorghum for livestock, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, among others.

Protecting farmers: Union Minister for Commerce and Industry Piyush Goyal stated that the agreement also protects the interests of Indian farmers and their rural communities since all sensitive agricultural and dairy products will be completely protected, including maize, wheat, rice, soya, poultry, milk, cheese, ethanol (as a fuel), tobacco, some vegetables and meat.

$500 billion purchase: India intends to acquire $500 billion of US energy, aircraft, precious metals, tech and coking coal over the next five years will significantly boost trade and economic growth between the two countries.

Russian oil trade: The White House has recently proposed that India will cease its imports of Russian oil, purchase US energy products exclusively and cooperate more closely with the United States to increase defence over the course of the next decade. However, the Indian government has yet to respond and asserts that energy security is its top priority.

Vast market for India: According to Piyush Goyal, the India-US trade agreement will provide $30 trillion worth of opportunities for Indian exporters, especially small-to-mid-sized businesses (MSMEs), farmers and fishermen, resulting in the creation of millions of jobs for youth and women.

Giving preferential market access: India and the US will commit to giving each other favourable market access in important sectors on a regular basis. The US will eliminate tariffs on certain Indian aircraft and aircraft parts that were previously imposed for national security. New Delhi will also receive a special tariff rate quota on automotive parts and negotiate outcomes for generic pharmaceuticals and ingredients.

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Enhancement of digital and technology trade: Both nations will remove trade barriers in digital and technology sectors, provide incentives for more technology product trade between each other and foster cooperation on technology.

Resolving market access issues and non-tariff barriers: In addition to removing other non-tariff barriers, India will modify existing barriers to US trade with India in medical equipment, products used to manufacture information technology (IT) goods and food/agriculture products by implementing measures needed to ensure local markets can sell the products to Indian consumers and to ensure that US consumers have access to these products.

Expanding trade: This framework will create a foundation for finalising the interim agreement and advance efforts to complete the Bilateral Trade Agreement with provisions to further decrease tariffs.