Uncertainty clouds India-US trade deal after Trump imposes new 10% tariff

Uncertainty clouds India-US trade deal after Trump imposes new 10% tariff

The new temporary rate, imposed after the US Supreme Court struck down the president’s signature tariff policy, is lower than the 18 per cent tariff under the India-US deal.

NEW DELHI: Prospects for an India-United States trade pact remain in doubt, a week after the US Supreme Court struck down President Donald Trump’s global reciprocal tariffs.

Indian exporters are seeking clarity as Trump rolls out new duties on nearly all countries while urging partners to stick to existing trade agreements.

Businesses in India that export goods to the US now technically face a new 10 per cent additional tariff imposed by Trump. This levy is temporary and can only last 150 days before the US Congress has to step in.

The new rate is lower than the 18 per cent tariff under the framework for a trade deal that India and the US agreed upon earlier this month, but have not formally signed.

However, Trump has announced that he intends to raise the broad tariff rate to 15 per cent without formalising it with a new directive, creating more confusion for exporters.

“Business has come to sort of a standstill. We probably need a few days or weeks before we get clarity on how this is going to pan out,” said Bino Pathiparampil, head of research at investment management firm Elara Capital.

Roughly 55 per cent of India’s exports to the US now face the lower 10 per cent duties. In addition to leather goods, apparel and footwear, these include certain chemicals and machinery.

However, about 40 per cent of India’s export value to the US – including smartphones, petroleum products and many medicines – remains outside the scope of both the scrapped reciprocal tariffs and the new levies, as they were already subject to near-zero tariffs.

Some politically sensitive sectors remain heavily taxed.

Indian steel and aluminium exports continue to face duties of around 50 per cent, while certain auto parts are still subject to 25 per cent tariffs.

TRADE DEAL UNDER PRESSURE

The shifting tariff landscape raises fresh questions about the future of the India-US trade deal.

On Feb 2, both sides agreed to an interim framework that would cap US tariffs on Indian goods at 18 per cent, down from between 25 per cent and 50 per cent.

In return, India signalled it would open its market further and commit to purchases worth hundreds of billions of dollars from the US.

Experts now suggest New Delhi may seek to revisit the terms of the agreement.

“We were negotiating because the US said that they will bring down the tariffs … and that’s how we were to concede many, many concessions to them. Now, the US is not in position to offer anything extra to us,” said Ajay Srivastava, founder of the Global Trade Research Initiative, a New Delhi-based research institute.

“The question before the Indian government will be: Why will it be difficult to justify such deals?”

India delayed plans to send a trade delegation to Washington last week for talks to finalise the interim trade deal, mainly due to uncertainty after the US Supreme Court’s decision.

But Trump has warned trading partners against backing out of negotiated agreements, fuelling concerns that countries attempting to renegotiate could face retaliatory measures.

LONG-TERM CERTAINTY STILL ELUSIVE

Despite Trump’s remarks, some analysts argue that a properly renegotiated deal could still strengthen supply chain ties and provide Indian exporters with more durable legal certainty, beyond political shifts in Washington.

“An amicable, agreed settlement and certainty in the long run is what will promote trade between the two countries, and that is what, in my belief, the industry would want,” said Pathiparampil.

But uncertainty may persist.

Legal experts have raised questions over whether the new 10 per cent tariff could itself face court challenges, particularly if the US cannot demonstrate a balance of payments crisis.

For now, Indian businesses are left planning shipments to a market where trade rules appear fluid.

While some exporters relieved from steeper duties may see short-term respite, many others continue to grapple with a policy environment that can shift overnight.