The much-awaited Indo-US trade pact has finally been agreed upon, though it's yet to be signed. With it, an uncertain period has come to an end. Or has it completely?
As we have often seen, President Donald Trump can be whimsical one minute and withdrawn the next. So nothing's cast in stone until we reach the finish line. But between all the bickering and bonding, what's heartening is that both sides have arrived at a basic framework, though neither mentioned the timeframe for the comprehensive, nuts-and-bolts version of the deal.
Meanwhile, Tuesday's big reveal about US' reciprocal tariffs plunging from a punitive 50% to 18% is not a bad second-best. But the proposed deal, announced separately on X by President Donald Trump and Prime Minister Narendra Modi, has raised more questions than answers.
Some dismiss the reduced 18% tariffs as a nothingburger, citing the pre-Trump era levies, which were minimal at about 3-4% on Indian goods exports. But amid evolving global trade dynamics, where tariffs are the norm rather than the exception, higher tariffs on Indian exports aren't self-defeating. And here's the basis for this devastating truth.
Tariffs are an own goal. The claim that exporters pay these levies is a myth, and as confirmed by a German university study, it's Americans who are footing the bill for all Trump tariffs!
The Kiel Institute for the World Economy pored over 25 million shipment records worth $4 trillion in transactional value, only to find that American importers and consumers are paying up 96% of the recent tariff cost.
What's more, foreign producers, including Indian, aren't reducing prices in order to remain competitive in the US market, but are shipping less to the US and instead selling elsewhere. For instance, India's export volumes to the US dropped by as much as 24%, while the post-tariff unit prices remained unchanged, according to the study.
Clearly, the argument that Indian exporters will lose business, or face lower price pressures to continue selling in the US market, doesn't hold. Instead of selling cheaper, our exporters are exploring other geographies to do business.
What's also undeniable is that tariffs are paid by importers, not exporters. Everywhere, it's importers who pay at border crossings, ports and airports where customs officials audit goods, and eventually, the costs are often passed on to consumers. Every dollar of tariff revenue represents a dollar extracted from American businesses and households, as noted by study after study.
In 2025, an estimated $132 billion net tax revenue was earned via tariffs and the fate of this tax bounty is what the US Supreme Court will soon decide. For, tariffs are not only resulting in price rises, but employers and producers too are facing the heat.
The weighted average applied tariff rate measures the rate imposed on different products from different countries, and it differs from averages measured by actual tariff revenue as a share of total goods imports. According to the Yale Budget Lab, the US average effective tax rate before Trump's second term stood at 2.4%, but shot up to 16.9% in January 2026.
Likewise, the World Bank pegged the weighted average applied tariff at 1.5% in 2022, while the Tax Foundation estimated it at 14—the highest average rate since 1946. It also noted that the Trump tariffs were the largest US tax increases (as a percentage of GDP at 0.55% for 2026), since 1993. In all, they are expected to raise $2.1 trillion in revenue from 2026 to 2035 on a conventional basis and reduce US GDP by 0.5%.
Disappointingly, these additional tariffs are seeping into US household budgets and in 2026, the increase is estimated at $1,300 for each household. Tariffs may have brought in record revenue, which is paid by American households themselves, but with consumers paying higher prices for essentials, inflation is likely to rebound this year. Historical evidence shows that tariffs raise prices and even lead to shortages, resulting in lower income, reduced employment, and lower economic output.
Next comes the question about Indian tariffs on US goods. Though there's no word from the government yet, Trump claimed that tariff and non-tariff barriers against the US will be down to zero. While we await confirmation, what's heartening is that Harley Davidsons', Bourbon whiskeys, California Almonds and all will cost much less. Though it's a blow to producers, it's a bonanza for Indian consumers, who are already waiting for an array of goods from the UK, EU and others to flood in.
India also managed to get off lightly compared to other countries in the region. For instance, competitors like Vietnam and Bangladesh have higher US tariffs than India at 20% each, Pakistan 19%, and China 34%. Which means our textiles, gems and jewellery, leather goods, handicrafts, toys, and auto component exports will be more competitive than others.
Lastly, Trump also claimed trade between our nations will cross $500 billion, which analysts believe will stretch over a period of five years. US goods and services exports stood at $41.5 billion and $41.8 billion, respectively in 2024, but if you add oil and gas exports, the $500 billion target seems doable.
In the evolving global trade dynamics, what's increasingly becoming clear is that tariffs are here to stay. Not just those imposed by the US. Each country is setting its own limits while signing Free Trade Agreements (FTAs). It means it's no longer about whether a country is imposing tariffs, but it's a question of who's imposing how much. Tariffs are a fact of life. So relative advantage over competitors is what matters. It's perversely entertaining that 18% is now considered an awesomely low tariff rate.
With uncertainty on the deal ending at once, the Indian stock market rallied with Nifty and Sensex topping 25,700 and 78,000, respectively, even as details on key issues, including agriculture, India's purchase of Russian oil and the services sector amid Trump's tightening of immigration policies, remain unclear. Whether the markets retain their cheer once more is known remains another interesting 'unknown unknown' in Rumsfeldian terms for now.