India has emerged with a clear tariff advantage over several competing export economies after New Delhi and Washington announced a trade deal on February 2, lowering tariffs on Indian goods to 18%. India now faces the lowest US tariffs among all emerging markets after South Korea. The move places India below or on par with most South and Southeast Asian peers, improving its relative cost competitiveness in key global markets.
Prime Minister Narendra Modi welcomed the announcement, calling it a boost for domestic manufacturing. “Delighted that Made in India products will now have a reduced tariff of 18%,” Modi said in a post on social media platform X, thanking US President Donald Trump for the decision.
Lower Than Most Regional Peers
At 18%, India’s tariff rate is now lower than several major export-oriented economies in Asia. Bangladesh, Sri Lanka, Taiwan and Vietnam face tariffs of 20%, while Indonesia, Malaysia, Thailand, the Philippines and Pakistan are levied 19%. Cambodia also faces a higher tariff burden at 19%.
Among South Asian economies, India’s positioning is particularly significant. While Afghanistan faces a lower tariff of 15%, its limited manufacturing depth and small export base mean it is not a meaningful competitor. Pakistan, India’s closest rival in textiles and select manufacturing segments, faces a marginally higher 19% tariff, putting Indian exporters at a relative advantage.
Sharper Contrast With Southeast Asia
The gap becomes more pronounced in comparison with Southeast Asia’s export-heavy economies. Vietnam, a key rival in electronics, garments and footwear, faces a 20% tariff. Indonesia, another large manufacturing base, stands at 19%.
These differences, while seemingly small, can materially impact pricing in cost-sensitive sectors such as apparel, footwear, electronics and light manufacturing, where margins are thin and global buyers are highly price conscious.
A Dramatic Shift From Earlier Tariff Levels
The latest deal marks a sharp reversal from India’s earlier tariff position. Until recently, India was among the highest-tariffed economies, facing a 50% levy alongside Brazil. This included a 25% reciprocal tariff and an additional 25% duty imposed by the US over India’s purchase of Russian oil.
US President Donald Trump said the reduction followed discussions with Prime Minister Modi, noting that India agreed to stop buying Russian oil and increase energy purchases from the US. Under the agreement, the US reduced its reciprocal tariff on India from 25% to 18%, while India committed to moving towards lowering tariffs and non-tariff barriers against the US.
Globally, India’s new tariff rate compares favourably against several large exporters. China faces a significantly higher tariff of 34%, while Brazil remains at 50%. Other economies such as South Africa (30%), Mexico (25%), Myanmar and Laos (40%) also face steeper duties.
Only a limited group of major economies – including the UK at 10% and countries such as Japan, South Korea and the European Union at 15% – enjoy lower tariffs due to earlier trade agreements with the US.
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