After months of anticipation, the United States and India this week announced a new trade agreement aimed at easing tariff barriers between the two countries. The deal was unveiled by US President Donald Trump and Indian Prime Minister Narendra Modi, with Washington agreeing to cut tariffs on Indian goods from 50% to 18%.
The revised tariff rate places India in a more favourable position than several Asian peers. Tariffs on Chinese goods currently stand at 20%, while Vietnam and Thailand face levies of 19%.
Analysts say the agreement could support India’s growth outlook in both the near and medium term. Before higher tariffs were imposed, the US accounted for nearly one-fifth of India’s goods exports, equivalent to about 2.2% of GDP. Lower duties are therefore expected to reduce pressure on exporters and lift sentiment.
However, the direct impact on Indian equity markets may be limited. According to Abhilash Narayan, CFA and Investment Strategist at HSBC Private Bank and Premier Wealth, companies within the MSCI India index derive less than 1% of their revenues from goods exports to the US. As a result, HSBC has maintained a neutral stance on Indian equities despite the initial market rally.
Currency markets reacted swiftly to the announcement, with the rupee strengthening against the dollar. While USD/INR fell sharply, HSBC expects any further appreciation to be gradual, extending into the end of 2026.
The deal also removes proposed reciprocal tariffs, lowering them from 25% to 18%, and scraps an additional 25% levy that had been linked to India’s purchases of Russian oil. President Trump said India had agreed to halt such purchases, though Indian officials have yet to confirm this. India’s imports of Russian crude have already declined as price discounts narrowed.
Another key element of the announcement was a pledge by India to purchase $500bn worth of US goods, including energy, technology and agricultural products. Markets are awaiting clarity on timelines and whether this would involve higher overall imports or a shift away from existing suppliers.
For now, investors appear encouraged by improving US–India trade ties, even as several unanswered questions remain.
