Reduction in US tariffs is big relief for Indian economy

Finally, the saga of Trump tariffs has ended on a happy note—at least from India’s perspective. With US President Donald Trump announcing an agreement with India that reduces tariffs on Indian goods from 50 per cent to 18 per cent, the long-standing bilateral trade tensions are likely to subside. He had imposed two tariffs on India: a 25 per cent reciprocal tariff, and later a 25 per cent import duty on account of India’s purchase of Russian crude oil. Trade had spilled over into the political and strategic arena, much to the detriment of the best interests of the world’s biggest democracies.

Trump and his officials made remarks about India that they should not have. They got closer to Pakistan, which said last month that it had inked a pact with a firm connected to World Liberty Financial, the main crypto business of Trump’s family. The objective is to explore the use of World Liberty’s USD1 stable coin for cross-border payments. The Trump administration also pampered the de-facto ruler of Pakistan-Army chief, Field Marshal Asim Munir. He was allowed to indulge in loose talk from American soil, which was very hurtful to Prime Minister Narendra Modi. Trump repeatedly claimed that he had brokered peace between India and Pakistan during the four-day skirmish last May.

Trump should not have said and done the things he did vis-à-vis India in his second term as President. But, they say, all is well that ends well. With Indian goods to pay an 18 per cent tariff, they suddenly become much more competitive in comparison with the merchandise from other countries. China faces a 37 per cent tariff, Brazil 50 per cent, South Africa 30 per cent, Myanmar 40 per cent, and Laos 40 per cent. We also fare slightly better compared to our neighbours, with Bangladesh and Vietnam facing 20 per cent tariff, and Malaysia, Cambodia, Thailand, and Pakistan paying 19 per cent.

There is also a serendipitous result: India gave up its reluctance to augment trade with the world and went into overdrive to finalise free trade agreements, the recent one being with the European Union. The India-EU agreement is not just another trade deal; it is a statement of intent. It signals that India is willing to engage seriously with large, demanding markets, accept high standards, and open its economy in a calibrated manner. The EU, with its vast consumer base and technological prowess, offers India access to high-value markets, advanced manufacturing ecosystems, and cutting-edge green technologies.

In return, Europe gains a reliable partner in Asia at a time when geopolitical uncertainties are reshaping global supply chains. More importantly, the push towards FTAs reflects a growing realisation in New Delhi that economic growth, job creation, and strategic influence are deeply intertwined. Trade is no longer viewed merely as an economic activity but as a tool of statecraft.

By embedding itself in a dense network of trade agreements, India reduces its exposure to unilateral coercion, enhances its bargaining power, and anchors itself more firmly in the global economic order. If Delhi sustains this momentum—by concluding more FTAs, improving domestic competitiveness, and aligning regulations with global standards, the country could emerge stronger and more resilient from an episode that initially appeared deeply damaging. In India, it takes a crisis to force overdue reform.