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The U.S. and India have reached a new interim trade agreement aimed at de-escalating trade tensions between the two countries following President Donald Trump’s decisions to substantially increase tariffs on imports from India last year.
The interim agreement, announced by Trump in a social media post on Feb. 3 and followed up on with a Feb. 6 executive order and a White House fact sheet published Feb. 9, lowers U.S. tariffs on Indian products to 18%, eliminating a 25% tariff related to India’s purchases of Russian oil and lowering a previously established baseline rate of 25% by seven percentage points.
The 25% tariff rate related to Russian oil imports was halted on at 12:01 am on Feb. 7; the additional lowering of tariffs on Indian imports from 25% to 18% is expected take place in March. According to the White House, the de-escalation is meant to facilitate additional negotiations, including around “a robust set of bilateral digital trade rules that address discriminatory or burdensome practices and other barriers to digital trade.”
India's government says that it will look to facilitate more imports of American products as part of the arrangement, with the White House prioritizing U.S. energy, information and communication technology, and coal.
The White House aims for Indians to buy more than $500 billion products over a five-year period; reportedly that includes some purchases already made by Indian firms.
The U.S.-India framework also comes on the heels of successful free trade negotiations by the European Union (EU) with India. On Jan. 26 the trade bloc and Indian government announced a deal that, when codified, will eliminate tariffs on 96.6% of EU imports into India. The European Commission expects to double annual exports from the EU to India once the agreement is put into effect.
Grant Thornton insight:
The White House fact sheet on the interim arrangement does not mention taxes, but India has a 6% online advertising tax for nonresident companies, and the administration has argued that digital services taxes are discriminatory against U.S. companies.
The White House did not clarify whether its calculation of the increased Indian purchases of U.S. goods might include foreign direct investment by Indian firms in the U.S. It also is unclear whether there will be sufficient demand from Indian firms to reach the White House's goal. According to the U.S. Trade Representative, U.S. goods and services exports to India totaled $83.3 billion in value in 2024.
The White House fact sheet suggests that the two countries also will continue to discuss market access for U.S. agricultural, industrial and technological exports. Talks around these and other bilateral trade issues predate the current Trump administration, as the U.S. has sought to deepen economic and political ties with India since the George W. Bush administration.
As with other trade frameworks announced by the administration in the past year, the agreement is not legally binding and could be changed by future presidential action unless codified through legislation in both nations.
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