India-US Interim Trade Pact FAQs: Why Did The US Agree To Slashing Tariffs To 18%?

India-US Trade Pact: After the recently inked "Mother of All Deals" between India-EU, India and the US announced on February 6, Friday, that they have agreed upon a framework for an "Interim Agreement" regarding a reciprocal and mutually beneficial trade pact.

According to an India-US joint statement, “The Interim Agreement between the United States and India will represent a historic milestone in our countries’ partnership, demonstrating a common commitment to reciprocal and balanced trade based on mutual interests and concrete outcomes.”

Here's your roadmap to clearing all doubts linked to the framework for an "Interim Agreement" announced by India and the US on Friday, February 6.

What Is The Extent Of US Tariff Reductions On Indian Imports?

The United States will apply a reciprocal tariff rate of 18 percent under Executive Order 14257 of April 2, 2025, on originating goods of India, including textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home décor, artisanal products, and certain machinery.

Also Read: India-US Trade Deal: What Could Soon Get Cheaper in India

Which Goods Originating From India Are Completely Exempt From US Tariffs?

Subject to the successful conclusion of the Interim Agreement, the United States will remove the reciprocal tariff on a wide range of goods such as "generic pharmaceuticals, gems and diamonds, and aircraft parts".

How Does The US Benefit From This Interim Trade Deal?

India will "eliminate or reduce tariffs on all U.S. industrial goods" and a wide range of U.S. food and agricultural products, including "dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, and additional products." Meanwhile, India has also agreed upon India agreeing to address long-standing barriers to the trade in US medical devices.

As part of this precursor to the larger bilateral trade pact expected soon to be inked between both countries, India eyes purchases totaling $500 billion of U.S. energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next 5 years.

Big Wins For Bharat Under India-US Interim Trade Pact

The United States will apply a reciprocal tariff rate of 18 percent on originating goods of India, including textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home décor, artisanal products, and certain machinery. Further , Indian goods such as gems and diamonds, generic pharmaceuticals, and aircraft parts will be exempt from reciprocal US tariffs.

On the other hand, India will also "receive a preferential tariff rate quota for automotive parts subject to the tariff imposed to eliminate threats to national security found in Proclamation 9888 of May 17, 2019."

Further, both nations have also agreed upon establishing rules of origin that ensure that the benefits of the agreement accrue predominately to the United States and India. 

Which Goods And Services Will Become Cheaper?

The tariff reduction aids in price competitiveness by reducing import costs, however, there is no direct impact on retail prices. The pricing is dependent on several factors like logistics cost, supply chains, retailer margins, and exchange rates.