India Signals Major Tariff Shift in US Trade Negotiations

India is preparing to abandon its longstanding protectionist stance by proposing zero tariffs on specific U.S. imports, a dramatic policy reversal that could reshape bilateral trade relations. Recent reports indicate the country has offered to eliminate duties on steel, auto components, and pharmaceuticals from the United States on a reciprocal basis up to certain quantities, marking a significant departure from its historical approach to international commerce.

The shift comes as negotiations with the Trump administration advance rapidly, with significant implications for India’s domestic manufacturing ambitions and economic growth strategy.

From “Tariff King” to Trade Liberalization

President Donald Trump has repeatedly referred to India as the “tariff king,” highlighting the country’s traditionally high import duties that have averaged around 17% compared to the U.S. rate of 3.3%, according to CNBC’s Inside India newsletter. The threat of 26% U.S. tariffs on Indian exports—currently suspended—appears to have catalyzed New Delhi’s reconsideration of its protectionist policies.

“The future of India hinges on it bringing down trade barriers and opening itself up to more free trade deals with other countries, especially the U.S,” said Malcolm Dorson, senior portfolio manager at Global X ETFs, emphasizing the strategic importance of the potential agreement.

The United States represents India’s largest trading partner, with bilateral commerce reaching $129 billion in 2024, including a $45.7 billion surplus in India’s favor. This existing trade imbalance likely strengthens America’s negotiating position in the ongoing talks.

Balancing Trade Openness With Economic Ambitions

The potential tariff elimination raises questions about India’s simultaneous pursuit of expanded domestic manufacturing capacity, a cornerstone of Prime Minister Narendra Modi’s economic vision. According to CNBC’s previous reporting, the country has invested heavily in policies designed to shore up local production across multiple sectors.

“India will be careful not to do anything that will harm domestic businesses,” said Shumita Deveshwar, chief India economist at TS Lombard. “Yes, India wants a deal with the U.S. because it is our biggest market in terms of goods and services imports and exports. But, zero tariffs is quite ambitious and I don’t see the government taking such a big step.”

Other experts suggest that even with zero tariffs in specific sectors, competitive dynamics would limit the impact on Indian manufacturers. Peeyush Mittal, portfolio manager at Matthews Asia, notes that exporting steel from the U.S. to India would likely remain “a money losing proposition” due to high transportation costs.

Sectors Positioned for Impact

Financial analysts are identifying potential winners and losers from the prospective trade agreement, with several Indian market sectors poised for significant movement based on the outcome of negotiations. According to CNBC, the financial, materials, and healthcare sectors could see the strongest benefits if a deal materializes.

Within the financial space, private banks such as HDFC and ICICI, which recently reported strong first-quarter earnings, are positioned advantageously. Steel companies JSW Steel and Steel Authority of India, along with pharmaceutical firms Cipla and Dr. Reddy’s Laboratories, are identified as particularly sensitive to trade developments.

Regardless of negotiation outcomes, analysts remain bullish on India’s IT consultancy giants Tata Consultancy Services and Infosys, as their service-focused business models face minimal tariff exposure. Logistics companies like Container Corporation of India could benefit from increased trade volumes.

Regional Trade Developments Accelerate

India’s trade policy shift occurs amid a broader regional realignment. The country signed a bilateral trade agreement with the United Kingdom on Tuesday, agreeing to gradually lower taxes on British imports with most goods becoming “fully tariff-free within a decade,” according to CNBC’s coverage.

President Trump has expressed optimism about the progress in U.S.-India negotiations, stating last week that talks had been “coming along great… we’ll have a deal with India.” Trump’s trade advisor has similarly indicated that an agreement could be finalized soon.

These developments unfold against a backdrop of regional tensions, as India conducted military strikes against what it described as “terrorist infrastructure” in Pakistan and Pakistan-occupied Jammu and Kashmir. The operations followed a militant attack in Pahalgam that killed 26 people last month.