India Gains Trade Edge Over China, Pakistan, Bangladesh After New US Deal Cuts Tariffs to 18%
India has emerged with a significant trade advantage over regional rivals after the United States announced a new bilateral trade agreement reducing tariffs on Indian goods to 18 per cent. The deal, confirmed by US President Donald Trump and welcomed by Prime Minister Narendra Modi, places India in a stronger export position compared to China, Pakistan, Bangladesh, and Vietnam.
The agreement follows nearly a year of negotiations and comes amid shifting global supply chains. It has also triggered strong political and economic reactions in India and abroad.
What We Know So Far
The United States has formally lowered its reciprocal tariff on Indian exports from 25 per cent to 18 per cent with immediate effect. This move applies to a wide range of Indian products, including textiles, pharmaceuticals, engineering goods, and consumer items.
Under the revised tariff regime:
- India will face 18% tariffs on most exports to the US
- China continues to face tariffs of around 34%
- Pakistan faces 19% tariffs
- Bangladesh and Vietnam face about 20%
- Indonesia faces 19%
With this change, India now enjoys the lowest tariff rate among major competing export economies in Asia.
According to government sources, the agreement also includes India’s commitment to reduce certain tariffs and non-tariff barriers on American products, though detailed schedules are yet to be released.
The deal is being seen as a major boost for Indian exporters, especially at a time when companies are diversifying supply chains away from China.
Official Statements
Prime Minister Narendra Modi welcomed the agreement on social media, calling Donald Trump a “dear friend”.
“Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India,” Modi said in a post.
Donald Trump announced the deal on his platform Truth Social, saying it was driven by personal goodwill and strategic ties.
“It was an Honor to speak with Prime Minister Modi. He is one of my greatest friends and a powerful and respected leader. We agreed to a Trade Deal… lowering the tariff from 25% to 18%,” Trump wrote.
A senior official from the White House confirmed that the US would also withdraw an additional 25 per cent penalty tariff earlier imposed over India’s purchase of Russian oil.
“The agreement reflects mutual trust and will not be allowed to be misused,” the official said.
Earlier, US Ambassador Sergio Gor had remarked that Trump “genuinely considers Prime Minister Modi a great friend”, a statement that now appears reinforced by the deal.
Why India Has an Upper Hand
The revised tariff structure gives India a clear competitive advantage in several sectors.
1. Textiles and Garments
India’s textile industry, which employs over 45 million people, is one of the biggest beneficiaries. Earlier, higher US duties had put Indian exporters at a disadvantage against Bangladesh and Vietnam.
With tariffs now at 18 per cent, Indian garments become more price-competitive in the US market.
2. Engineering and Manufacturing Goods
Sectors such as auto components, machinery, and electrical equipment are expected to see increased demand as US buyers look for alternatives to Chinese suppliers.
3. Pharmaceuticals and Chemicals
Indian pharma exports, already strong in the US, may now gain further traction due to improved pricing.
4. Supply Chain Diversification
Global companies shifting production away from China are likely to view India as a more attractive sourcing hub due to lower tariffs and political alignment with Washington.
An export council official said, “This deal strengthens India’s position as a reliable manufacturing partner for the US.”
Comparison With China, Pakistan, and Bangladesh
India’s advantage becomes clearer when compared to key regional rivals.
China
China continues to face high tariffs of around 34 per cent on many exports to the US. Trade tensions between Washington and Beijing remain unresolved, limiting Chinese competitiveness.
Pakistan
Pakistan faces 19 per cent tariffs despite recent diplomatic outreach to Washington. Analysts say political instability and security concerns continue to affect investor confidence.
Bangladesh
Bangladesh, a major garment exporter, remains subject to around 20 per cent tariffs. While competitive in labour costs, it now faces pricing pressure from India.
Vietnam and Indonesia
Both countries face tariffs close to 19–20 per cent, making India more attractive for US importers.
A trade analyst said, “A 2–3 per cent difference in tariffs can decide billion-dollar contracts. India’s edge is commercially significant.”
Timeline of Events
- Early 2025: India and US begin formal negotiations on trade and tariffs
- Mid-2025: Talks intensify amid supply chain realignments
- Late 2025: Disagreements over oil imports and tariffs delay agreement
- January 2026: Final round of negotiations completed
- This Week: Trump announces tariff reduction to 18%
- Same Day: Modi welcomes deal publicly
- Present: Agreement comes into force immediately
Strategic and Geopolitical Context
The deal has broader implications beyond trade.
In his post, Trump claimed that Modi agreed to reduce purchases of Russian oil and increase imports from the US and potentially Venezuela. While Indian officials have not yet confirmed this in detail, experts see energy cooperation as part of the wider strategic understanding.
The agreement also strengthens the India-US partnership at a time of global uncertainty, including tensions in Europe and the Indo-Pacific.
Former diplomats say the deal reflects Washington’s desire to strengthen India as a counterweight to China in Asia.
Reactions From Industry and Experts
Indian exporters have welcomed the decision.
A textile exporter from Tiruppur said, “We were losing orders to Bangladesh. Now buyers are calling us back.”
The Federation of Indian Export Organisations (FIEO) stated that the deal could add $15–20 billion in exports over the next three years.
However, some economists have cautioned that India must ensure reciprocal benefits.
An economic policy expert said, “Lower US tariffs are positive, but India must protect sensitive sectors while opening its market.”
What Happens Next
Several developments are expected in the coming weeks:
- Release of detailed tariff schedules
- Clarification on India’s reciprocal commitments
- Possible parliamentary review
- Industry consultations on implementation
- Monitoring of trade flows
Officials say a joint monitoring mechanism will be set up to ensure compliance.
The Commerce Ministry is expected to issue operational guidelines for exporters soon.
Further trade talks may also follow, covering digital trade, services, and intellectual property.
Our Final Thoughts
The India-US trade agreement marks a crucial moment in the country’s economic diplomacy. By securing a lower tariff regime than its regional competitors, India has strengthened its position in global supply chains and reinforced its credibility as a long-term trade partner.
The deal reflects a combination of sustained negotiations, political alignment, and strategic timing. With China still facing high barriers and other Asian exporters struggling to match India’s scale, New Delhi has gained a rare window of opportunity.
However, this advantage must be used wisely. Lower tariffs alone cannot guarantee sustained export growth. India must now focus on improving logistics, reducing compliance costs, and ensuring consistent quality. Without these structural reforms, the benefits of the deal could be short-lived.
At the same time, transparency around reciprocal commitments will be essential to maintain domestic confidence. Trade agreements work best when they balance national interest with global integration.
Overall, the agreement signals India’s growing weight in international trade negotiations. If backed by policy consistency and industrial competitiveness, it could become a foundation for long-term economic gains rather than a short-term diplomatic win.