India-US Trade Deal: Tariffs Slashed to 18% in New Pact

A New Chapter in Economic Ties

India and the United States announced a significant breakthrough in their trade relationship on February 6, 2026, unveiling a framework for an interim trade agreement. This move aims to lower tariffs, resolve long-standing market access issues, and strengthen economic cooperation. The centerpiece of the agreement is the United States' decision to reduce its reciprocal tariff rate on Indian goods to 18 percent, a substantial reduction from previous levels that had reached as high as 50 percent. This framework serves as a foundational step toward a more comprehensive U.S.-India Bilateral Trade Agreement (BTA), negotiations for which were launched in February 2025.

The Core Trade-Offs

The interim agreement is built on a principle of reciprocity. India has committed to eliminating or significantly reducing tariffs on a wide array of American products. This includes all U.S. industrial goods and a broad range of agricultural and food items such as dried distillers' grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruits, soybean oil, wine, and spirits. This move is expected to provide American farmers and manufacturers with greater access to India's large and growing market.

In return, the United States will apply a uniform 18% tariff on most Indian goods. The list of benefiting Indian exports is extensive, covering key sectors like textiles and apparel, leather and footwear, plastics and rubber, organic chemicals, home décor, and artisanal products. Furthermore, upon the successful finalization of the interim pact, the U.S. has agreed to completely remove tariffs on certain high-value Indian exports, including generic pharmaceuticals, gems and diamonds, and aircraft parts, which will significantly boost India's export competitiveness.

India's Purchase Commitment

To further balance the trade relationship, India has signaled its intent to purchase approximately $100 billion worth of U.S. goods over the next five years. This strategic procurement plan covers several key sectors. The intended purchases include energy products, aircraft and aircraft parts, precious metals, coking coal, and advanced technology products. Notably, the agreement aims to expand trade in high-tech items like graphics processing units (GPUs) and other data center equipment, reflecting a deeper partnership in the technology sector.

Addressing Non-Tariff Barriers

A crucial component of the framework is India's commitment to address non-tariff barriers that have historically hindered U.S. exports. The agreement specifically targets long-standing American concerns in several areas. India has agreed to review pricing and regulatory hurdles affecting U.S. medical devices and ease restrictive import licensing procedures for Information and Communication Technology (ICT) goods. Additionally, within six months of the agreement's implementation, India will assess the acceptance of U.S. or international standards and testing rules in key sectors to streamline trade and reduce compliance burdens for American companies.

Strategic and Geopolitical Dimensions

The agreement extends beyond simple tariff adjustments. It includes provisions for strengthening economic security and supply chain resilience. Both nations have pledged to cooperate on inbound and outbound investment reviews, align on export controls, and take complementary actions to address non-market policies of third countries, a clear reference to countering China's economic influence. The framework also establishes rules of origin to ensure that the benefits of the pact accrue primarily to Indian and U.S. producers.

Digital trade is another key focus. Both sides have committed to addressing discriminatory practices and other barriers to digital trade. This sets a clear pathway for establishing ambitious and mutually beneficial digital trade rules as part of the full BTA, a critical area for two of the world's largest digital economies.

Market Impact and Future Outlook

Indian officials have hailed the agreement as a landmark achievement that opens a $10 trillion market for Indian exporters, particularly benefiting Micro, Small, and Medium Enterprises (MSMEs), farmers, and fishermen. The expected surge in exports is projected to create a significant number of new jobs. At the same time, the agreement safeguards India's sensitive agricultural sectors, with products like maize, wheat, rice, poultry, and dairy remaining protected from tariff concessions.

This interim framework is not the final destination but a critical milestone. Both countries will work to implement its provisions promptly while continuing negotiations for the comprehensive BTA. The successful conclusion of this interim deal is expected to build trust and momentum, paving the way for a deeper, more strategic, and legally binding trade relationship that aligns with the geopolitical and economic realities of the 21st century.