That pressure culminated in 2025, when the Trump administration-imposed tariffs of up to 50 per cent on select Indian goods. The effects were sharp but uneven. Labour-intensive sectors such as textiles, apparel, gems and jewellery, auto components, and seafood faced immediate strain as price competitiveness deteriorated and buyers explored alternative sourcing destinations. At the same time, pharmaceuticals, smartphones, and certain electronics were exempted, preventing a collapse in aggregate exports. The episode nonetheless underscored how quickly tariff escalation can reorder sectoral outcomes, particularly for exports dependent on scale and cost advantages.
Against this backdrop, the recent India-US “reciprocal tariff” arrangement must be assessed. The headline shift is from punitive duties to a reciprocal tariff ceiling of 18 per cent on Indian exports. For exporters, the value of predictability after a period of volatility is undeniable. The more important question, however, is whether this outcome leaves India better placed relative to both its competitors and its broader trading partners?
On one dimension, the answer is clearly yes. In labour-intensive manufacturing, particularly textiles and apparel, India now finds itself in a comparatively strong position. With tariffs capped at 18 per cent, Indian exports face a lower US tariff burden than those from China, which continue to attract duties of around 34 per cent. India also fares slightly better than Bangladesh and Vietnam (around 20 per cent), and is marginally ahead of Indonesia and Pakistan (around 19 per cent). In sectors where sourcing decisions are highly price-sensitive, these differentials matter. Even a one- or two-percentage-point advantage can shift orders, and on this metric, India has secured a meaningful tactical gain.
That advantage, however, is relative and narrowly defined. When India’s position is compared with that of developed partners such as the European Union and Japan, the picture changes. Exports from these economies continue to face significantly lower applied tariffs in the US, typically in the single digits across most product categories. India’s 18 per cent ceiling, while an improvement over punitive rates, still places Indian exporters outside the inner circle of preferential access enjoyed by advanced economies. The arrangement improves India’s standing within its peer group of developing exporters, but it does not deliver parity with the tariff treatment accorded to the US’s closest economic partners.
What further distinguishes the India–US pact is the nature of the exchange. This is not a conventional market-access bargain. Tariff relief is reportedly linked to broader commitments, including increased imports from the US and, more notably, constraints on India’s energy sourcing from Russia. Conditioning trade outcomes on foreign-policy alignment marks a departure from traditional tariff negotiations and introduces a form of strategic conditionality that most other US trading partners do not face.
India’s own policy choices reinforce this asymmetry. The Union Budget 2026-27, while formally country-neutral, has selectively lowered tariffs in capital-intensive and technology-driven sectors. Zero duties on aircraft components and MRO inputs, long-term certainty for nuclear-generation equipment, exemptions for clean-energy manufacturing inputs, and relief for specialised medical devices all improve access for foreign suppliers in areas where US firms are globally competitive. These measures align with India’s industrial and energy priorities, but they also underscore that India’s concessions are concentrated in precisely those sectors where American exporters stand to gain the most.
Taken together, the arrangement signals a shift in how India-US trade is being negotiated, away from broad multilateral norms and towards managed outcomes shaped by strategic alignment. If a deeper bilateral trade agreement is eventually pursued, India will be negotiating not from a clean slate, but from a structure where market access is increasingly tied to non-trade considerations. The challenge will be to convert short-term tariff stability into a pathway towards deeper tariff convergence and clearer limits on non-trade demands linked to market access.
In practical terms, much of the gains will turn on the fine print of the arrangement, which is not yet public. Claims of reciprocity must be treated with caution, particularly in view of the frequency with which US trade policy has shifted under the Trump administration. That uncertainty is further compounded by the fact that the validity of US tariff actions remains adjudication before the US Supreme Court. For Indian exporters, the lesson is diversification. Even as US-India engagement deepens, and as India signs FTAs with several other countries such as New Zealand and the European Union, Indian exporters must seek to compete across a wider set of markets rather than anchor export strategies to US trade policy cycles that remain subject to geopolitical shifts.
Sanjay Notani is senior partner at International Trade and Customs, and Naghm Ghei is partner, International Trade and Customs. The views expressed are personal.
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