Trade deals are suddenly everywhere in the news. Tariffs, reciprocal taxes, export access, market openings — the terminology can feel technical, even intimidating. But at its core, it’s actually quite simple: countries are negotiating how much tax they charge each other’s goods, and those decisions can directly affect businesses, jobs, prices, and economic growth.
Over the past few months, India has been at the center of some major developments — an interim trade deal with the United States after months of high tariffs, and long-awaited agreements with the European Union and the United Kingdom. These are not small moves. They signal a shift in how India is positioning itself in the global trade landscape.
So what exactly are tariffs? Why do countries impose them?
Ending months of suspense after the United States’s imposition of reciprocal tariffs of 50% since April 2025, (including a 25% penalty for trade with Russia) India and the United States have recently concluded an interim trade deal agreement which brings the tariff down to 18%.
But what exactly are tariffs in the first place. Why has this been a hot topic of discussion…let’s find out.
Tariffs are taxes on imported goods, typically a percentage of the good’s value.
- For example, a 10% tariff on a Rs100 product would mean a Rs10 tax additionally, taking the total cost to Rs 110.
- This tax is then paid to the government by the companies/firms importing the foreign products.
- The importing firms may pass on some or all of the extra cost on to their customers in the country or they may decide to import lesser goods if demand is impacted due to higher costs.
- Reciprocal tariffs are basically when one country puts a tax on another country’s products in response to that country doing the same to its products.
- For e.g if Country A charges a 15% tax on Country B’s steel, Country B might do the same to Country A’s cars.
- On the face of it, the basic idea behind tariffs is to ensure fairness in trade. The goal is either to protect the country’s own industries and/or to pressure the other country into lowering its taxes or restrictions.
Once the Interim Agreement is signed, the US will then apply a lower reciprocal tariff rate of 18% on all Indian exports to the US, while making tariffs zero on Pharmaceuticals, Gems, and Diamonds, etc.
In exchange, India will reduce or eliminate tariffs on certain imports from the US, including some food and agricultural products, amongst others, and stop buying Russian Oil. Alongside is also a $500 billion purchase intent from the US over the next five years.
The EU and UK deals
Last month, India also finalised a more comprehensive Free Trade Agreement with the European Union (EU) after 20 years of negotiations, while the one with the UK was done in July 2025 after three years of discussions.
These provide zero-duty access for more than 90% of Indian exports, particularly benefiting labour-intensive sectors like textiles, leather, and gems & jewellery. In return, India has reduced tariffs on liquor/wines, automobiles and fruits etc. Now draft texts are to be published, followed by legal review, translation and approval by EU governments, the European Parliament and India, expected possibly within a year.
From an economic standpoint, these FTAs strengthens diversification of India’s trade basket gaining incremental access to European markets, improving export volumes and revenues.
What does all this mean for the Indian Economy?
While the tariff truce is being celebrated, parties on both sides acknowledge that the full implementation schedule, product lists, and timelines remain to be formalized through executive orders, cabinet approvals, and regulatory mechanisms. Continued consultations between Indian trade negotiators and US & EU counterparts are expected in the coming months to firm up operational details.
At first glance, these trade agreements may look like just another policy announcement. But in reality, they could shape how India trades, grows, and competes in the coming years.
Lower tariffs can support exporters, improve competitiveness, and potentially boost GDP growth. At the same time, the real impact will depend on how the agreements are implemented, how trade flows actually change, and how businesses respond to new opportunities. Questions around import balances, energy sourcing, and sector-specific benefits will only become clearer over time.
Trade deals are not instant game-changers — they unfold gradually. Their success depends not just on what is signed, but on how effectively the country leverages the access it has negotiated.
For now, the direction is clear: India is actively reshaping its global trade relationships. The coming months and years will tell us how strongly that translates into economic momentum.
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