India-US Trade Deal Likely by Fall 2025, But Tariff Risks Remain: Morgan Stanley

A trade deal between India and the US is expected to take time but could be finalized by fall 2025, according to a Morgan Stanley report. While India faces direct tariff risks, it is less vulnerable to a slowdown in global goods trade due to its low goods exports-to-GDP ratio, the lowest in Asia.

The report points out that there is still uncertainty about the extent of tariff increases India may face, as the US administration has not fully clarified how reciprocal tariffs will be imposed. Given the multiple trade issues between the two countries, reaching an agreement will be challenging.

Officials have indicated a possible free trade agreement (FTA) timeline between September and November 2025. Until then, India is unlikely to avoid reciprocal tariffs set for April 2nd, and further tariff increases could occur in the meantime.

The World Trade Organization (WTO) rules also play a role. Under the most-favored-nation (MFN) principle, India cannot lower tariffs specifically for the US without extending the same benefits to all WTO members, unless done through an FTA. Some exceptions exist, such as free trade agreements or special access for developing countries, but they come with strict conditions.

From a tariff risk perspective, India is among the more exposed Asian economies. It has high tariff rates on select imports, strong non-tariff barriers, and a significant goods trade surplus with the US. Pharmaceuticals, which make up 2.8% of India’s exports and 0.3% of GDP, are also at risk. US President Donald Trump has indicated that he may impose tariffs on this category.

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