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3 Feb 2026·Source: The Hindu
4 min
International RelationsEconomyNEWS

US Reduces Tariff on Indian Goods to 18% After Trade Deal

US reduces tariffs on Indian goods to 18% after trade deal.

US Reduces Tariff on Indian Goods to 18% After Trade Deal

Photo by Teng Yuhong

Following a phone call between Prime Minister Narendra Modi and U.S. President Donald Trump, the U.S. has agreed to reduce tariffs on "Made in India" products to 18%. This is down from the 50% penalty tariffs imposed in August 2025. According to President Trump, India will also stop buying Russian oil and reduce tariffs and non-tariff barriers against the U.S. to zero. The External Affairs Ministry has yet to respond with details.

Key Facts

1.

US tariff on India: Reduced to 18%

2.

Previous tariff: 50% (August 2025)

UPSC Exam Angles

1.

GS Paper 2 - International Relations: Bilateral agreements involving India and/or affecting India's interests

2.

GS Paper 3 - Economy: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

3.

Potential question types: Statement-based MCQs on trade agreements, analytical questions on the impact of tariffs

Visual Insights

More Information

Background

The recent trade discussions between the U.S. and India are part of a long history of economic relations. Understanding this history requires looking at the evolution of tariffs and trade agreements. These agreements aim to reduce barriers and promote economic growth. The concept of tariffs themselves has changed over time, from being a primary source of government revenue to tools for protecting domestic industries and influencing international relations. Trade relations are also influenced by broader geopolitical considerations. During the Cold War, India's economic policies leaned towards non-alignment and a mixed economy. After the Cold War, India began to liberalize its economy, leading to increased trade with the U.S. This shift involved reforms related to Foreign Direct Investment (FDI) and the reduction of trade barriers. These reforms were often influenced by international institutions like the World Trade Organization (WTO), which promotes free and fair trade among member countries. Key legislation like the Customs Act, 1962, governs the imposition and collection of tariffs in India. This act provides the legal framework for levying duties on imported and exported goods. The power to impose tariffs is derived from the Constitution of India, which grants the Union Government the authority to regulate international trade. These legal and constitutional provisions are essential for understanding India's trade policy. India's trade relations with the U.S. are also shaped by global events and alliances. The U.S. has historically used trade as a tool to achieve its foreign policy objectives. This includes imposing sanctions or offering trade concessions to influence the behavior of other countries. Therefore, understanding the dynamics of international relations is crucial for analyzing trade agreements between India and the U.S.

Latest Developments

Recent years have seen increased trade tensions between the U.S. and several countries, including India. The U.S. has often used tariffs as a tool to address what it perceives as unfair trade practices. This has led to retaliatory measures from other countries, creating a complex web of trade disputes. These disputes often involve issues related to intellectual property rights, market access, and government subsidies. India has been actively engaging in bilateral and multilateral trade negotiations to protect its economic interests. This includes discussions with the U.S. to resolve trade disputes and explore new areas of cooperation. Institutions like NITI Aayog play a crucial role in formulating India's trade policy and providing recommendations to the government. These efforts aim to create a more favorable environment for Indian businesses and promote economic growth. The future of India-U.S. trade relations will depend on several factors, including the political climate, economic conditions, and the outcome of ongoing negotiations. Both countries have a strong interest in maintaining a stable and mutually beneficial trade relationship. This requires addressing existing challenges and exploring new opportunities for cooperation in areas like technology, energy, and healthcare. Looking ahead, India's focus will likely be on diversifying its export markets and reducing its dependence on any single country. This strategy involves strengthening trade ties with other regions, such as Africa and Latin America. India is also working to improve its domestic infrastructure and regulatory environment to enhance its competitiveness in the global market.

Frequently Asked Questions

1. What are the key facts about the US reducing tariffs on Indian goods that are important for the Prelims exam?

For the Prelims exam, remember that the US has reduced tariffs on Indian goods to 18%. Previously, these tariffs were at 50% since August 2025. Keep in mind that this change happened after discussions between PM Modi and President Trump.

Exam Tip

Focus on the percentage change in tariffs (50% to 18%) and the key personalities involved. These are frequently tested in Prelims.

2. What is a tariff, and why is understanding it important in the context of this US-India trade news?

A tariff is a tax imposed on imported goods. Understanding tariffs is crucial because they directly impact the cost of goods, influencing trade volumes and economic relationships between countries. In this case, the reduction of US tariffs on Indian goods signals a potential improvement in trade relations.

3. How do tariffs differ from non-tariff barriers?

Tariffs are taxes on imported goods, while non-tariff barriers are restrictions on trade that do not involve taxes. Non-tariff barriers can include quotas, regulations, or other policies that make it more difficult or expensive to import goods. Both impact international trade, but in different ways.

4. Why is the reduction of tariffs on Indian goods by the US in the news recently?

This topic is in the news because it signifies a potential shift in trade relations between the US and India. The reduction of tariffs, from 50% to 18%, suggests a move towards easing trade tensions and fostering a more cooperative economic environment, following recent trade disputes.

5. What are the potential pros and cons of the US reducing tariffs on Indian goods?

Pros include increased trade, economic growth for both countries, and improved diplomatic relations. Cons might involve potential disadvantages for specific US industries that now face increased competition from Indian goods. The impact will depend on the specific sectors affected and the overall trade strategy.

6. From an interview perspective, how might this trade deal impact common citizens in both countries?

For common citizens, this trade deal could lead to lower prices on some goods due to reduced tariffs. It might also create job opportunities in export-oriented industries. However, some sectors could face job losses due to increased competition. The overall impact will vary depending on individual circumstances and the specific industries involved.

7. What is the historical background of trade discussions between the US and India?

Trade discussions between the US and India have a long history, marked by evolving tariffs and trade agreements aimed at reducing barriers and promoting economic growth. These discussions reflect the changing dynamics of the global economy and the efforts to balance trade interests between the two countries.

8. What are the important dates to remember regarding US tariffs on Indian goods?

Remember August 2025, when the US imposed a 50% tariff on Indian goods. Also, note the current date when the tariff was reduced to 18% following the trade deal.

Exam Tip

Dates related to tariff changes are important for factual recall questions in the exam.

9. According to President Trump, what other changes will India make as part of this trade deal?

According to President Trump, India will stop buying Russian oil and reduce tariffs and non-tariff barriers against the U.S. to zero.

10. What are the recent developments leading up to the US reducing tariffs on Indian goods?

Recent years have seen increased trade tensions between the U.S. and several countries, including India. The U.S. has often used tariffs as a tool to address what it perceives as unfair trade practices, leading to retaliatory measures and complex trade disputes.

Practice Questions (MCQs)

1. Consider the following statements regarding tariffs: 1. Tariffs are taxes imposed on imported or exported goods. 2. Tariffs are primarily used to generate revenue for the government. 3. The Customs Act, 1962 provides the legal framework for levying tariffs in India. Which of the statements given above is/are correct?

  • A.1 and 2 only
  • B.1 and 3 only
  • C.2 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: B

Statement 1 is CORRECT: Tariffs are indeed taxes imposed on goods that are either imported or exported across international borders. Statement 2 is INCORRECT: While tariffs do generate revenue, their primary purpose is often to protect domestic industries from foreign competition. Statement 3 is CORRECT: The Customs Act, 1962, provides the legal basis for levying and collecting tariffs on goods entering or leaving India.

2. In the context of India-U.S. trade relations, consider the following: Assertion (A): The U.S. has reduced tariffs on 'Made in India' products to 18% following a trade deal. Reason (R): India has agreed to stop buying Russian oil and reduce tariffs and non-tariff barriers against the U.S. to zero. In the light of the above statements, which one of the following is correct?

  • A.Both A and R are true and R is the correct explanation of A
  • B.Both A and R are true but R is NOT the correct explanation of A
  • C.A is true but R is false
  • D.A is false but R is true
Show Answer

Answer: A

Assertion A is TRUE: The news summary states that the U.S. has reduced tariffs on 'Made in India' products to 18% after a trade deal. Reason R is TRUE: According to the news, India has agreed to stop buying Russian oil and reduce tariffs and non-tariff barriers against the U.S. to zero. R is the correct explanation of A because the tariff reduction is a result of the agreement.

3. Which of the following organizations promotes free and fair trade among member countries?

  • A.International Monetary Fund (IMF)
  • B.World Bank
  • C.World Trade Organization (WTO)
  • D.United Nations (UN)
Show Answer

Answer: C

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

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