In a significant development for bilateral trade, US President Donald Trump's announcement to slash tariffs on Indian goods from 50% to 18% has been welcomed by Finance Minister Nirmala Sitharaman, who expressed optimism that this move will revitalize India's export sector. Speaking in an interview with news agency PTI on Tuesday, Sitharaman highlighted the positive implications for Indian exporters, stating that this reduction is a good augury for them and that exports are expected to pick up now.
Details of the Trade Agreement and Conditions
President Trump revealed on Monday that the tariff reduction is part of a newly announced trade deal between the United States and India. However, this decision comes with specific conditions attached. According to Trump, the agreement was made in exchange for India lowering its own trade barriers and ceasing purchases of Russian crude oil. Instead, India is expected to source oil from the United States and potentially Venezuela, marking a strategic shift in energy procurement.
Impact of Previous High Tariffs on Indian Exports
The previous steep 50% tariffs imposed by the United States last year had a detrimental effect on Indian exports. These high duties increased landed costs for American buyers, squeezed profit margins for Indian exporters, and eroded competitiveness in the US market. Key sectors such as steel, aluminium, textiles, engineering goods, and certain agricultural products were particularly hard hit, leading to a shift in orders to alternative suppliers like Vietnam and Bangladesh.
According to HSBC Global Investment Research, the hefty US tariffs caused India's bilateral trade surplus with the US to shrink by an average of $2.5 billion per month from September to December 2025, compared to the monthly average from January to August 2025. Additionally, the report noted $14 billion in equity outflows by foreign investors since July 2025, reflecting weak market sentiment amid the trade tensions.
Expected Benefits and Competitive Landscape
If implemented, the new trade deal would align India's tariffs with those of most other Asian countries, which typically range from 15% to 19%. Currently, regional competitors such as Vietnam and Bangladesh face duties of around 20%, so this development is anticipated to reduce India's price advantage in the US market. Despite this, Sitharaman remains confident, emphasizing that the tariff cut, combined with the new markets exporters have tapped after becoming uncompetitive in the US, will lead to a resurgence in export activities.
The Finance Minister also mentioned that while the full details of the agreement will be announced soon, the reduction in tariffs is a positive sign for exporters. She reiterated this sentiment in a post on X (formerly Twitter), calling the announcement good news for Made in India products. This move is set to provide major relief to labor-intensive export sectors, including apparel, footwear, and jewellery makers, which had been severely impacted by the punitive 50% duties imposed in August, leading to a sharp decline in competitiveness and order flows as buyers sought cheaper alternatives.
Broader Implications for Indian Economy
The tariff reduction is expected to boost exports by making Indian goods more affordable and competitive in the American market. Sitharaman's remarks underscore the government's focus on enhancing trade relations and supporting exporters through favorable policy changes. As India navigates this new trade landscape, the deal could also influence broader economic strategies, including energy sourcing and market diversification efforts.
Overall, the US tariff cut represents a pivotal moment in India-US trade relations, offering a pathway to recovery for affected industries and potentially strengthening bilateral economic ties in the coming years.
