Beyond Tariffs: Why the India–US Trade Deal Signals a Strategic Shift

By R. Suryamurthy

India’s trade agreement with the United States — under which Washington will cut tariffs on Indian goods to 18 per cent from levels that had effectively climbed to as high as 50 per cent — is being read in New Delhi, boardrooms and global markets as far more than a routine trade reset.

Economists and policymakers see it as a strategic inflection point that reshapes India’s export outlook, strengthens its manufacturing push and subtly recalibrates its geopolitical positioning at a moment when the global trading system itself is fragmenting.

The agreement, announced by US President Donald Trump following a call with Prime Minister Narendra Modi, unwinds punitive duties imposed through 2025 and restores India’s cost competitiveness in its single largest export market, which accounts for roughly 21 per cent of India’s total goods exports.

See Also: Trump Rules Out Force In Greenland, Walks Back Tariffs Plan

While the detailed legal architecture of the deal is still awaited, analysts argue that the direction of travel is unambiguous: the immediate tariff relief alone could add 20–30 basis points to India’s GDP growth over the next year and catalyse a renewed cycle of investment into export-oriented, labour-intensive manufacturing.

“This is not just a tariff correction; it is a signal of strategic intent,” said Anil Talreja, Partner at Deloitte India. “Two major trade agreements in quick succession with economies representing more than $50 trillion in output underline that India is no longer sitting on the sidelines of global trade reordering. It is actively embedding itself into it.”

Export relief after months of strain

The tariff rollback comes after nearly six months of acute stress for Indian exporters, especially in sectors such as textiles, apparel, gems and jewellery, leather and marine products, which were disproportionately hit by the earlier duty regime.

Data from industry bodies show that India’s gems and jewellery exports to the US fell 44.4 per cent year-on-year to $3.86 billion between April and December 2025, as higher duties eroded margins, delayed shipments and forced order renegotiations.

“The move from 50 per cent to 18 per cent gives exporters immediate breathing space,” said Krishan Arora, Partner at Grant Thornton Bharat. “But more importantly, it restores predictability. Over the last few months, uncertainty — not just tariffs — was the biggest enemy of exporters.”

Moody’s Ratings echoed that assessment, saying the tariff reduction would “reinvigorate India’s goods export growth to the US”, with labour-intensive sectors such as gems and jewellery, textiles and apparel among the biggest beneficiaries. The ratings agency noted that pharmaceuticals and consumer electronics were largely insulated, as they had been exempt from the steepest duties even during the punitive phase.

Despite the headwinds, India’s shipments to the US still rose about 9.7 per cent year-on-year in the first nine months of FY26, driven largely by electronics and smartphone exports. Economists say that resilience now provides a stronger base for a broader export recovery once the tariff relief fully feeds through supply chains in FY27.

Manufacturing ambitions and supply-chain realignment

Beyond the immediate export bounce, the agreement strengthens India’s strategic pitch as a credible alternative manufacturing hub to China. With tariffs now at 18 per cent, India’s treatment by the US is broadly in line with regional competitors such as Vietnam, Indonesia and the Philippines, sharply narrowing the relative disadvantage that had opened up over the past year.

“This materially changes how global companies assess India in their supply-chain strategies,” said Shilan Shah, Deputy Chief Emerging Markets Economist at Capital Economics. “India combines tariff parity with advantages that are harder to replicate — low labour costs, political stability and a domestic market large enough to de-risk investment.”

The timing of the deal also dovetails with the Union Budget’s renewed emphasis on manufacturing incentives, logistics investment and MSME support. Analysts see this alignment as deliberate rather than coincidental.

“Trade liberalisation without domestic capacity building rarely works,” Talreja said. “Here, the sequencing is clear — open markets externally while strengthening competitiveness at home.”

See Also: European Union Considers Hitting US with €93 Billion in Tariffs After Trump’s 25% Tariff Move

Industry bodies have been quick to underline the potential spillovers. The Federation of Indian Export Organisations described the deal as a “game-changer” for sectors ranging from engineering goods and chemicals to textiles, apparel and agriculture, while the Confederation of Indian Industry said it would catalyse job creation and help build more resilient supply chains.

Energy, geopolitics and unresolved risks

The strategic dimension of the agreement extends well beyond trade. President Trump said India had committed to significantly increasing purchases of US energy and scaling down imports of Russian crude — a shift that could have far-reaching implications for India’s energy security calculus.

Ratings agencies and economists, however, have flagged execution risks. Moody’s warned that an abrupt halt to Russian oil imports would be disruptive and potentially inflationary for India, one of the world’s largest crude importers. Refining industry sources have indicated that a wind-down period would be essential to meet existing contractual commitments.

“There is sound logic in diversifying energy sources,” said an economist at a global ratings firm. “But a disorderly transition could tighten supplies and push up prices, which would undermine some of the macro gains from the trade deal.”

Geopolitically, the agreement is being interpreted as a subtle but meaningful recalibration. “India has sought to preserve strategic autonomy,” Shah said. “But if this rapprochement with the US proves durable, it clearly nudges India closer to the US economic and strategic orbit, even if alignment stops short of formal blocs.”

Market reaction and the road ahead

Financial markets responded swiftly to the announcement. Indian equities opened sharply higher, with the Sensex jumping more than 2,000 points, while the rupee strengthened on expectations of improved export earnings and stronger capital inflows.

Economists broadly agree that the deal removes a significant external drag at a time when global demand remains fragile and protectionist pressures are rising elsewhere. “For MSME-led sectors, this could mark the difference between prolonged stress and recovery,” said Manoj Mishra, Partner at Grant Thornton Bharat.

Yet uncertainties remain. The absence of detailed timelines, the continued applicability of Section 232 tariffs on steel, aluminium and automobiles, and the scope of India’s commitments on non-tariff barriers will all shape the eventual impact. “The fine print will matter,” said one trade economist. “But the strategic direction is unmistakable.”

Taken together, the agreement underscores a broader evolution in India’s trade posture — away from defensive caution and towards active integration with major markets. As Talreja put it, “India is no longer preparing for the global economic order. It is stepping into it.”

This report is from 5Wh news service. NewsGram holds no responsibility for its content. 

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