Hope and uncertainty as India and US strike long-delayed trade deal
US President Donald Trump’s decision to lower reciprocal tariffs on India from 50% to 18% has been met with a sense of relief in Asia’s third-largest economy, even as precise details on the agreement remain sketchy.
India paid the highest tariffs in the world after Trump raised import duties on Indian goods from 25% to 50% in August last year, saying Delhi’s purchase of discounted Russian oil was helping fund Moscow’s war effort in Ukraine.
After his call with India’s prime minister on Monday, Trump claimed Narendra Modi had “agreed to stop buying Russian oil, and buy much more from the United States, and potentially Venezuela”.
India has not commented on these exact claims, but Modi thanked Trump “on behalf of the 1.4 billion people of India for this wonderful announcement”, saying he hoped to take the partnership with the US to “unprecedented heights”.
The patch-up comes after Trump’s trade war soured carefully cultivated relations between Washington and Delhi, with exports from India to the US falling sharply across key job-creating sectors such as textiles, seafood and jewellery.
Trump’s tariffs also forced a notoriously protectionist government in Delhi to expedite a flurry of other trade agreements and diversify its export markets.
Last week, India and the EU announced “the mother of all trade deals”, eliminating tariff on 80-90% of goods. It was Delhi’s ninth free trade agreement in four years, as the deal with Washington showed no signs of progress.
The long-delayed announcement by Trump was, as expected, widely welcomed by Indian industry.
“While the devil is in the details, it removes a hanging sword over the rupee, equity and rates market. Let us hope that it is a win-win deal for both the countries,” said Nilesh Shah, a fund manager.
Tariff-related uncertainty was one of the many reasons for India’s rising trade gap, falling rupee and a flight of foreign money from the country last year. The 18% tariff now brings the rate in line with India’s peers in Asia such as Vietnam, Thailand and Bangladesh who pay duties between 19% and 40% on US exports.
“This greatly boosts India’s appeal as an alternative to China for the reconfiguration of supply chains. Indeed, India still offers many other advantages that other manufacturing hubs can’t, including low labour costs, political stability and a large domestic market for MNCs to sell to as a hedge against future tariffs,” Shilan Shah of Capital Economics said in a note.
India’s textile exporters also cheered the announcement, with the Confederation of Indian Textile Industry saying the deal will allow them to “compete effectively in the US market, the single-largest market for India’s textile and apparel exports”.