India-US Trade Deal: Reduced Tariffs, Long-term Investments in Tech, and Boost for MSMEs The new India-US trade agreement, reducing the US reciprocal tariff to 18%, is set to attract major US investments in tech and AI, and provide a significant competitive advantage and predictable growth for Indian MSMEs.

India and the US are finally entering into a trade agreement. The deal had become a sore spot between the two nations in recent months, drawing a spate of harsher comments from the US President. However, the latest announcement by Trump signaled an ice-melting and rebooting of India-US ties.

Trump in a post said:

"It was an Honor to speak with Prime Minister Modi, of India, this morning. He is one of my greatest friends and, a Powerful and Respected Leader of his Country. We spoke about many things, including Trade, and ending the War with Russia and Ukraine. He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela. This will help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week! 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. The Prime Minister also committed to "BUY AMERICAN," at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products. Our amazing relationship with India will be even stronger going forward. Prime Minister Modi and I are two people that GET THINGS DONE, something that cannot be said for most. Thank you for your attention to this matter!"

India's Prime Minister Narendra Modi also responded:

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.

When two large economies and the world's largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation.

President Trump's leadership is vital for global peace, stability, and prosperity. India fully supports his efforts for peace.

I look forward to working closely with him to take our partnership to unprecedented heights.

That said, details of the US-India trade agreement are sketchy as of now except for a few things like the US is lowering reciprocal tariffs, from 25% to 18%. This gives India an advantage over markets like China (34%), Brazil (50%) and Bangladesh (20%), which continue to have relatively high tariffs, according to a Times of India report.

This also follows India's trade deal with the EU, also touted as the mother of all deals. The agreement is said to have a great deal of impact on India's automotive and tech industries.

ALSO READ: India-EU FTA Bets On AI, Quantum, and Advanced Semiconductors and What the 'Mother Of All' Trade Deals Mean For Indian Auto Industry

Similarly, the India-US is likely to have a big impact on the Indian economy across tech and SMEs sectors.

For instance, the lowered reciprocal tariffs of 18%, may encourage US enterprises to make long-term spending in India's tech, AI and other sectors.

Late last year, Amazon announced a broad plan to expand AI access across India by 2030, aligning its efforts with the Government of India's AI Mission aimed at improving accessibility, productivity, and digital inclusion. The company said it is on track to invest USD 12.7 billion in local cloud and AI infrastructure and plans to support millions of small businesses, students, and customers through new AI driven tools and initiatives.

Even Microsoft announced investing $17.5 billion in India.

Experts believe that the India-US agreement will help export-focused Indian micro, small, and medium enterprises (MSMEs) to a large extent, among other sectors.

"Export-oriented micro, small, and medium enterprises (MSMEs), which account for approximately 45% of India's exports, benefit from improved pricing power and job creation opportunities. This could create 1.5-2 lakh jobs in the gems and leather sector and support 3 million livelihoods in the seafood sector. However, increased competition from US imports may pressure less-efficient domestic players, risking 5 lakh jobs in textiles without adaptation," Rushabh Shah, Managing Partner at Stir Advisors told Entrepreneur India.

Kresha Gupta, Fund Manager at Steptrade Capital, tells Entrepreneur India that nearly 45% of India's total exports are MSME led, either directly or as Tier 2 and Tier 3 suppliers across capital goods, textiles, auto components, chemicals, leather, and gems & jewellery. In these sectors, MSME participation ranges from 60% to as high as 90%, which means any reduction in tariff or trade friction flows down the chain to MSMEs through higher order volumes, better pricing, improved capacity utilisation, and faster execution too. Unlike large corporates that can absorb pricing shocks, MSMEs operate on thin, single digit margins. Even a 2–3% improvement in price competitiveness can translate into parallel margin expansion or enable MSMEs to win incremental export orders. From an investment lens, this directly improves cash flows, balance sheet resilience, and working capital cycles for MSME linked businesses.

For MSMEs, having uncertainty is often a bigger constraint than tariffs. Greater clarity on trade direction, easier contract negotiations, and smoother regulatory dialogue reduce payment delays and working capital stress, a key risk factor that investors closely track when allocating capital to MSME heavy sectors.

From a portfolio perspective, the trade agreement also complements the Union Budget 2026's emphasis on structural MSME enablement rather than short term relief. Initiatives such as the ₹10,000 crore SME Growth Fund, enhanced receivables financing, the Self-Reliant India Fund top-up, export facilitation measures, directly address MSME bottlenecks around liquidity, compliance, and scalability. Together, these measures improve MSMEs' ability to absorb trade opportunities rather than be overwhelmed by them.

"On the European Union front, the so-called "mother of all deals" represents a longer term structural opportunity. MSMEs benefit from tariff elimination because EU tariffs (averaging 4–8%) often equal a full year of net profit in sectors like textiles, leather, and engineering. An FTA significantly improves their cash flows, boosts price competitiveness, and provides greater long-term order stability. While EU compliance requirements around ESG, carbon, and traceability are demanding, once MSMEs make these investments, they create durable competitive moats. For serious, organised MSMEs, compliance becomes an entry barrier for weaker competitors, leading to longer contracts and more stable export earnings," Gupta added.

"It is said that India - US deal may lead to near term margin support of 1.5 -- 3% export linked MSMEs and India - EU deal may give long term tariff advantage of 4–6%, with total competitiveness gains of up to 7–10% for compliant MSMEs. For MSMEs, this is not going to give any overnight scale but confirms a predictable growth, stronger cash flows, and deeper integration into global supply chains all of which materially improve their investment attractiveness," Gupta further said.

From a policy point of view, it's not clear whether India got a good bargain.

Sagar Vishnoi Director and Co-Founder Future Shift Labs says, "If we see from the Indian SME and policy lens, the India–US trade deal is a mixed bag. In the short term, it is clearly positive, as lower tariffs restore competitiveness for Indian exporters and open up immediate opportunities for SMEs across manufacturing, textiles, engineering goods and services. However, the long-term implications raise valid concerns."

Vishnoi also highlighted Trump's claim that India is going to stop buying oil from Russia.

"India agreeing to wind down Russian oil imports and shift towards costlier energy sources from the US or Venezuela could steadily increase input costs for businesses. There is also the risk that Indian companies may be compelled to procure certain goods from the US at higher prices, even when the domestic market has been supplying these efficiently. Similarly, wider access for US agri-tech products could put pressure on domestic agri-innovation and small producers if safeguards are not carefully designed. For SMEs, the opportunity lies in leveraging improved market access while investing in efficiency, value-addition and global compliance. Strategically, India must ensure trade facilitation does not come at the cost of energy security, food systems, and long-term economic autonomy," he said.