The United States has lowered tariffs on Indian goods to 18 per cent from 50 per cent under a new trade deal between the two countries, US President Donald Trump and Prime Minister Narendra Modi announced on Monday. The reduced tariff came into effect after higher duties were imposed on August 27. With this move, India gets a slight advantage over countries like Vietnam, Bangladesh, Pakistan and other Southeast Asian nations, which are facing 19 per cent tariffs from the US. In comparison, the European Union, the United Kingdom, Japan and South Korea currently face tariff rates ranging between 10 and 15 per cent.

Announcing the decision, President Trump said the reduction was made out of respect and friendship for Prime Minister Modi. In a post on Truth Social, Trump said, “Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%. They will likewise move forward to reduce their Tariffs and non-tariff barriers against the United States to zero.”

Soon after, Prime Minister Modi welcomed the announcement and thanked the US President. In a post on X, Modi said, “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 for this wonderful announcement.”

As part of the trade agreement, President Trump also said that India has agreed to stop buying Russian oil and instead purchase much more energy from the United States and potentially from Venezuela. He added that India has committed to buying goods worth $500 billion from the US, including energy, agricultural products, coal and other items.

The trade deal comes just a day after India announced several proposals in the Union Budget that could directly benefit American companies. During her Budget speech, Finance Minister Nirmala Sitharaman announced a tax holiday until 2047 for any foreign company that provides cloud services to global customers by using data centre services located in India. This move is expected to help major American technology companies expand their presence in the Indian market.

India has also increased its energy imports from the US and signalled greater openness to imports under trade agreements with the UK and the European Union. These sectors were earlier protected by high tariffs. In the Budget, the government proposed the removal of duties on aircraft components and nuclear-generation equipment, steps that would benefit American exporters. The US is a global leader in the aviation sector and is among the largest exporters of nuclear reactor components.

For domestic industries, particularly textiles, Sitharaman announced several measures to improve productivity. These include capital support for textile machinery in clusters and a targeted scheme to improve the availability of key input items, an issue the sector has faced for a long time.

During bilateral trade negotiations, the US had been pushing for greater market access for its companies planning to set up data centres in India. These demands reportedly included tax incentives, easier access to land, energy and water, and duty exemptions on certain imports. The Budget announcement of a tax holiday until 2047 for foreign companies establishing data centres in India addresses one of these major US demands.

Several American companies have already announced large investments to build data centres in India to support the growing needs of artificial intelligence. Last month, Union IT Minister Ashwini Vaishnaw said that private investments in India’s AI infrastructure could double from last year’s $70 billion by the end of the current financial year, FY26.

The Budget also proposed zero customs duty on nuclear-generation equipment, absorber rods and project imports for all registered nuclear plants until 2035. This move signals long-term market access for foreign suppliers. In the aviation sector, India has removed duties on aircraft components and Maintenance, Repair and Operations (MRO) inputs, benefiting US aerospace companies as well as engine manufacturers and maintenance service providers.

Additionally, with the passage of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, 2025, and the opening up of the nuclear power sector to private players in operations, the Indian government has addressed another key demand raised by the US during trade discussions.

Overall, the trade deal marks a significant step in strengthening economic ties between India and the United States, covering tariffs, energy trade, technology, aviation and nuclear cooperation, while reflecting policy changes announced in India’s recent Union Budget.