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(Bloomberg) — The US and India reached a trade agreement cutting tariffs on Indian goods, US President Donald Trump announced, deescalating tensions between the two countries.
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Trump said Monday that he would lower his 25% tariff on Indian goods to 18% after Prime Minister Narendra Modi agreed during a phone call to stop buying Russian oil. Trump is also removing the extra 25% duty on Indian goods he applied in response to India’s purchases of crude from Russia, according to officials familiar with the matter.
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In total, the moves will reduce the overall levies on many Indian goods from 50% to 18%, representing a significant reduction on textiles, machinery and other goods. The US president said that India will also “move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO” as well as purchase “over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products.”
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“Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India,” Trump posted on social media. “Our amazing relationship with India will be even stronger going forward.”
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Modi confirmed the pact, posting on social media that “Made in India products will now have a reduced tariff of 18%.”
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India’s benchmark stock index Nifty 50’s futures traded at the Gujarat International Fin-Tec City surged as much as 3.8% in thin trading, while the US-listed iShares MSCI India ETF hit session highs and rose as much as 2.4%. The rupee rallied in offshore trading, gaining 1% against the dollar.
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The move offers significant relief for New Delhi, which has sought for months to negotiate a lower rate with Washington. India ships almost a fifth of its total exports to the US and Trump’s tariffs of 50% amounted to the highest rate on products from any major trading partner.
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The high tariff rate had impacted almost 55% of India’s exports to the American market and threatened to unravel its ambitions of becoming a manufacturing powerhouse.
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“While devil is in the details, it removes a hanging sword over rupee, equity and rates market,” said Nilesh Shah, managing director at Kotak Mahindra AMC. “Let us hope that it is a win-win deal for both the countries as they have lot to gain through cooperation.”
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It wasn’t immediately clear a deal was imminent before Trump and Modi’s phone call. US Trade Representative Jamieson Greer said last Tuesday that while India had “made a lot of progress” on curbing Russian oil buys but “they still have a ways to go on this point.”
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Lengthy Talks
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India was among the first to open trade talks with the Trump administration, but ties soured after the US president repeatedly claimed credit for a ceasefire between India and Pakistan, an assertion that rankled officials in New Delhi. The tariffs further strained relations.
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