India-US interim trade pact trims US tariffs to 18% and paves way for $500 billion five-year goods pledge

The United States and India have announced an interim trade framework that reduces U.S. tariffs on Indian goods to 18 per cent. This marks a significant shift in the tariff regime and serves as a foundation for deeper bilateral trade negotiations.

In parallel, Washington has withdrawn the additional 25 per cent duty that had previously been imposed on Indian imports, signalling a move toward broader tariff normalisation and smoother market access for Indian exporters.

Under the terms of the interim agreement, India will lower or remove tariffs on a wide range of U.S. industrial goods. This covers sectors such as machinery, plastics and rubber, organic chemicals, textiles and apparel, leather and footwear, home decor, and various artisanal products.

There is also a specific emphasis on agricultural and farm products, including dried distillers’ grains, red sorghum used for animal feed, tree nuts, fresh and processed fruits, soybean oil, wine, and spirits. The aim appears to be mutual recognition of market access improvements across diverse product categories, reducing frictions that have historically constrained trade flows between the two economies.

In return, the United States will apply an 18 per cent tariff on selected Indian goods, with notable focus on textiles and apparel, leather, plastics and rubber goods, organic chemicals, home décor, and related machinery.

This reciprocal tariff framework is designed to create parity in tariff treatment and to incentivise both sides to pursue deeper market access arrangements in subsequent negotiations. The 18 per cent rate represents a compromise position, intended to foster confidence while protecting sensitive domestic industries on both sides during the transition.

If the interim agreement progresses to full conclusion, the U.S. will remove reciprocal tariffs on a broader set of Indian products. This envisaged step includes generic medicines, gems and diamonds, and aircraft parts.

The phased approach indicates a staged liberalisation where initial tariff reductions pave the way for broader concessions over time, contingent on ongoing negotiations and observed compliance with agreed provisions.

Separately, there is an undertaking to remove tariffs on certain aircraft and aircraft parts from India. This element underscores a strategic emphasis on aerospace cooperation and the potential for strengthened supply chains in aviation components, which could benefit both countries’ industries and end-users alike. The aviation-related concessions are expected to support Indian manufacturing capacity while offering the U.S. market access for its aviation-related goods.

Both nations have committed to addressing non-tariff barriers that can hinder trade even when tariffs are reduced. The aim is to smooth commercial operations by reducing regulatory hurdles, accelerating clearance processes, and improving certainty for businesses.

In particular, India is set to tackle longstanding barriers affecting U.S. medical devices, with the objective of enabling easier entry of these products into the Indian market. This aligns with a broader goal of enhancing healthcare access and ensuring that innovative medical technologies reach patients more efficiently.

In addition, India has agreed to scrap restrictive import licensing rules that currently impede U.S. information and communications technology (ICT) goods. By removing these licensing constraints or raising thresholds, India hopes to facilitate quicker and more predictable market access for U.S. ICT products, enabling greater competition and technological advancement within the Indian market.

Non-tariff barriers impacting U.S. food and farm products are also on the agenda for improvement. The framework envisions measures to address issues such as sanitary and phytosanitary standards, testing regimes, and other regulatory barriers that can delay or block trade in agricultural commodities. The overall objective is to create a more transparent and predictable environment for U.S. agricultural exporters seeking access to Indian consumers and retailers.

Looking ahead, India has signalled an ambitious target to purchase around $500 billion worth of U.S. goods over the next five years. The planned purchases span energy, aircraft and parts, precious metals, technology products, and coking coal, reflecting a deliberate mix of strategic sectors intended to bolster bilateral economic ties.

The proposed outlay signals India’s intent to diversely engage with the U.S. economy and to support U.S. exporters through a substantial implied demand signal.

Beyond tariff reductions, both sides intend to advance co-operation in technology sectors, including the expansion of joint efforts around high-performance computing and data-centre infrastructure. There is particular interest in trading and co-developing graphics processing units (GPUs) and other critical tech components that drive data-intensive applications. This tech collaboration is framed as a strengthening pillar of the relationship, with potential knock-on benefits for innovation ecosystems on both sides.

The two countries will continue negotiations for a broader Bilateral Trade Agreement (BTA) aimed at deepening market access and refining rules governing trade. While tariff reductions in the interim framework are a concrete step, the BTA talks will focus on broader market opening, regulatory alignment, and investment protections.

During these negotiations, the United States will consider India’s request to continue lowering tariffs on Indian goods, signalling a willingness to proceed in good faith toward a more comprehensive agreement.

The framework appears designed to provide immediacy in tariff relief while leaving room for staged concessions and iterative dialogue. This approach offers both sides a pathway to test the practical effects of tariff changes, identify remaining obstacles, and adjust policy instruments in response to real-world outcomes.

The ultimate objective remains a more integrated and mutually beneficial trade architecture that can foster sustained growth, job creation, and technology transfer.

The interim framework delivers reduced U.S. duties on Indian goods to 18 per cent and signals the removal of a parallel 25 per cent tariff previously in place. It sets the stage for broader concessions, non-tariff barrier reforms, and a potential BTA that could deepen trade ties across industrial, agricultural, and technology sectors.

If the full framework is realised, the agreement could reshuffle supply chains, promote greater investment, and unlock a multi-hundred-billion-dollar expansion in bilateral trade activity over the coming years.

Agencies