Balancing external shocks and domestic reforms: Do U.S. tariffs erode India’s tax reform benefits?
On February 2, 2026, the United States and India finalized a trade deal in which the U.S. will reduce its tariffs from 50% to 18% on merchandise imports from India.
- tariffs
- trade
- taxes
- India
By Barun Deb Pal and Manmeet AjmaniFebruary 5, 2026
On February 2, 2026, the United States and India finalized a trade deal in which the U.S. will reduce its tariffs from 50% to 18% on merchandise imports from India. Earlier, on August 1, 2025, U.S. imposed 25% tariff on such imports (comprising a 10% baseline tariff + 15% reciprocal component). These tariffs cover around 70% of India’s exports to the U.S. Further, on August 27, 2025, an additional 25% tariff was implemented, as a penalty for Russian oil purchases, bringing the tariff rate to 50%. The measure was among the highest U.S. tariffs on any country, raising significant concerns for the Indian economy, as the U.S. has been a major trading partner.
Total India-U.S. merchandise trade has grown rapidly in the past decade, rising from $53 billion in 2014 to $79 billion in 2022. In 2022, India’s exports to the U.S. accounted for more than 60% of total bilateral trade. The U.S. emerged as India’s top trading partner in 2022, contributing about 11% of India’s overall trade, while India accounted for around 2.5% of total U.S. trade. The U.S. also accounted for around one-fifth of India’s total exports in 2022. These trade values are deflated using the GDP deflator of India obtained from the Ministry of Statistics and Programme Implementation.