The Elephant and the Eagle: Navigating the US-India Trade Relationship for Investors

Introduction

The US-India trade relationship is one of the most complex, consequential, and rapidly evolving bilateral corridors in the global economy. In 2025, total bilateral trade in goods and services reached approximately $239 billion, making India the 11th largest trading partner of the United States. Yet unlike most of the trade relationships we have covered in this series, US-India in 2026 is defined less by structural stability and more by tariff turbulence, high-stakes negotiations, and a fundamental question about where the relationship is headed.

The two countries have spent much of the past year navigating one of the most difficult chapters in their modern trade history. India was hit with an initial 26% reciprocal tariff in early 2025, reduced to 18% under an Interim Agreement in November 2025, then further modified to a 10% Section 122 rate after a US Supreme Court ruling in February 2026. On top of this, the Trump administration announced additional tariffs as a penalty for India’s continued purchases of Russian crude oil, pushing effective duties on some Indian goods to as high as 50%.

Amid this volatility, both governments continue to negotiate. A US-India Trade Deal announced in early 2026 has begun rationalising tariffs across critical sectors including pharmaceuticals, engineering goods, and gems and jewellery. Meanwhile, US companies including Micron and Apple’s suppliers are significantly expanding their Indian operations, and Indian firms including Tata, Reliance, and TCS are deepening their US footprint.

For investors, US-India represents one of the most important and least predictable trade corridors in the world. It touches pharmaceuticals, IT services, gems and jewellery, textiles, engineering goods, and increasingly semiconductors. This article, the latest in our trade relations series, follows on from previous pieces on Australia-China, Canada-China, US-Vietnam, and US-Brazil.

This article updates our September 2025 overview of the US-India trade relationship, which came at a time when the initial reciprocal tariff shock was still settling. Since then, the picture has shifted significantly: the November 2025 Interim Trade Agreement, the February 2026 US Supreme Court ruling that restructured tariff authority, the ongoing Section 232 pharmaceutical investigation, and India’s rapid emergence as a semiconductor manufacturing destination all warrant a fresh look.

The Tariff Timeline: A Turbulent Year

Since our September 2025 article, the tariff picture has moved through several distinct phases. To understand the current state of US-India trade, it helps to trace how quickly things have changed over the past 18 months.

Early 2025: The Trump administration announced sweeping reciprocal tariffs on trading partners, with India initially facing a 26% rate under the IEEPA (International Emergency Economic Powers Act). Indian markets reacted sharply, particularly export-oriented sectors including pharmaceuticals, textiles, and engineering goods.

November 2025: After months of intensive negotiations, the US and India signed the Interim Trade Agreement, reducing the tariff on Indian goods from 26% to 18%. India agreed in return to open several sectors to greater US access, including agriculture, dairy, and select manufacturing categories.

February 2026: The US Supreme Court ruled on the constitutional basis of certain IEEPA tariff actions, forcing the administration to restructure the framework. The 18% IEEPA rate was replaced by a 10% Section 122 surcharge, providing further relief to Indian exporters.

Mid-2026: The Trump administration announced additional tariffs on Indian goods as a penalty for India’s continued purchases of Russian crude oil. When stacked with the base 10% rate, effective duties on some Indian goods now approach 50%.

Ongoing: A formal US-India Trade Deal is progressing, with tariff rationalisation announcements covering pharmaceuticals (+21.4%), engineering goods (+19.0%), and gems and jewellery (+18.2%). The Section 232 pharmaceutical investigation initiated in April 2025 remains active and could yet reshape the sector.

For investors, the key takeaway from this timeline is that the US-India trade relationship is in constant motion. Tariff rates may change within weeks. Sector-specific carve-outs and penalties can be announced and modified. Portfolio exposure to India requires close monitoring of the specific tariff regime that applies to each sector.

Trade Volume and the Balance of Power

The US-India bilateral relationship is now one of the world’s largest.

• Total 2025 bilateral trade (goods and services): approximately $239 billion
• US goods exports to India in 2025: $45.6 billion (up 9.8% from 2024)
• US goods imports from India in 2025: $103.8 billion (up 18.9%)
• US goods trade deficit with India: approximately $58 billion
• US services trade with India (2024): approximately $83.4 billion, roughly balanced

This is up from approximately $212 billion at the time of our September 2025 article, roughly 13% growth despite the tariff turbulence in between.The composition matters. US goods imports from India grew nearly twice as fast as exports in 2025, reflecting India’s rapid emergence as a manufacturing alternative to China. The goods deficit of roughly $58 billion has been the primary political driver behind US tariff pressure, though the services trade is more balanced.

Services is where India’s economic footprint in the US is most visible. Indian IT services companies including Tata Consultancy Services, Infosys, and Wipro provide critical technology infrastructure and consulting to major US corporations. Indian workers on H-1B visas play essential roles in Silicon Valley and financial services. The services relationship is deeply intertwined at a corporate level in ways that raw trade statistics don’t fully capture.

Key Sectors at a Glance

The following table summarises the major categories of India’s exports to the US, based on the most recent full-year 2025 data:

Source: US Census Bureau and India’s Ministry of Commerce, full-year 2025 (figures approximate).

Pharmaceuticals: The Strategic Priority

The pharmaceutical sector is the single most strategically important category in US-India trade. India accounts for approximately 47% of generic drugs used in the United States, and the US market represents 31.35% of India’s total pharmaceutical exports. The dependency runs deep in both directions.

Since our September 2025 article, the pharmaceutical picture has become significantly more complex. Section 232 pharmaceutical tariffs were announced in April 2026, creating a framework where large branded drug manufacturers face up to 100% tariffs, with exemptions for MFN pricing or onshoring agreements. Generics were initially exempted, but that could change based on ongoing reviews.

Companies like Sun Pharma, Dr. Reddy’s, Cipla, Aurobindo Pharma, and Lupin manufacture significant volumes of active pharmaceutical ingredients and finished generic drugs for US patients. Any major disruption to this trade would have immediate and visible consequences for US drug pricing and availability.

This is why the pharmaceutical Section 232 investigation, initiated in April 2025, matters so much. Section 232 gives the US president authority to impose tariffs on imports deemed a threat to national security. If the investigation concludes that pharmaceutical import dependence constitutes a national security risk, additional duties could be imposed on top of existing tariffs. Results were expected by March 2026 but have been delayed.

For investors, the pharmaceutical trade is a tension between commercial reality and political optics. The US benefits enormously from Indian generic drugs. Imposing high tariffs would directly raise US healthcare costs, including at the pharmacy where voters would see the impacts on their receipts and wallets. But the political pressure to onshore drug manufacturing is real, and the Trump administration has consistently framed pharmaceuticals as a strategic sector requiring US-based production.

The April Section 232 tariffs on pharmaceuticals that we covered earlier this year created a framework where large branded drug manufacturers face up to 100% tariffs, with exemptions for companies that sign MFN pricing or onshoring agreements. Generics were initially exempted, but that could change based on ongoing reviews.

IT Services and the Software Backbone

India’s IT services sector is arguably the most important element of the US-India economic relationship, even though it doesn’t show up in traditional goods trade statistics. Indian IT services companies employ hundreds of thousands of workers serving US clients, providing everything from cloud infrastructure management to software development to business process outsourcing.

Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies, and Tech Mahindra are the major players, together generating tens of billions of dollars in annual revenue from US customers. They are also among the largest employers of Indian professionals in the United States, particularly through the H-1B visa programme.

The IT services relationship faces multiple pressure points. Immigration policy changes affect H-1B availability. AI and automation threaten traditional outsourced work models. And any broader deterioration in US-India relations could ripple into services trade even if the specific tariff regime doesn’t touch it directly.

For investors, Indian IT services stocks offer exposure to the deep structural ties between the two economies, alongside significant sensitivity to US policy shifts. The sector has been one of the more resilient areas of India’s economic story, but it faces its own transformation pressures as AI reshapes what large services workforces actually do.

While the IT services relationship was central to our September 2025 analysis, the pressures on it have intensified over the past year, with H-1B policy tightening and AI-driven automation both accelerating.

Gems, Jewellery, and Textiles: The Traditional Strengths

India’s gems and jewellery sector represents around 16% of its US exports, driven overwhelmingly by cut and polished diamonds, gold jewellery, and precious stones. Companies including Titan and Kalyan Jewellers operate large export operations, while thousands of smaller family businesses in cities like Surat and Mumbai form the backbone of the industry.

Textiles and apparel represent another traditional strength at around 7% of Indian US exports. Bangladesh has taken share in some segments, but India remains competitive in higher-value textile products, home furnishings, and traditional garments. The 20% US tariff faced by Vietnamese textile exporters makes Indian producers relatively more competitive in some categories.

Both sectors are labour-intensive and politically important within India. Any significant disruption to US export markets would create meaningful employment and political consequences, which is one reason both governments have prioritised finding accommodations.

Semiconductors and Electronics: The Rising Story

Perhaps the most interesting element of the US-India trade relationship is what is emerging in semiconductors and electronics manufacturing. India’s semiconductor market was valued at approximately $52 billion in 2024-25, and while the country still imports around 95% of its chips from Taiwan, South Korea, China, and Singapore, that dependency is starting to shift.

This section reflects one of the biggest changes since our September 2025 article. At the time, India’s semiconductor ambitions were mostly aspirational. Since then, several projects have moved into execution.

Micron Technology’s $2.75 billion facility in Sanand, Gujarat is expected to begin commercial semiconductor production shortly. The Indian government has approved multiple additional chip facilities and offered substantial subsidies to attract semiconductor investment. Foxconn, Vedanta, and Tata have all announced significant chip-related projects, though execution has been uneven.

On the electronics side, Apple has been actively shifting iPhone production to India through its contract manufacturers. India is now producing a growing share of iPhones globally, both for the domestic market and for export. This mirrors the trend we discussed in the US-Vietnam article, with India emerging as the second major “China plus one” beneficiary alongside Vietnam.

For investors, semiconductors and electronics represent India’s most compelling growth story, though also one with significant execution risk. Success depends on continued government support, effective public-private partnerships, and the ability to build the deep supplier ecosystems that competitive chip manufacturing requires.

The Russian Oil Complication

The Russian oil issue was already a friction point when we wrote our September 2025 article, but it has since become a formal basis for additional US tariffs, marking a significant escalation.

One of the more unusual elements of current US-India tensions is the Russian oil issue. India has emerged as one of the largest buyers of Russian crude oil since 2022, importing at prices below Western sanctions caps and often refining the crude for re-export as processed products.

From India’s perspective, this is straightforward economics. Russian crude is cheaper than most alternatives, and India needs energy to support its rapidly growing economy. Refusing to buy Russian oil would raise Indian energy costs significantly and slow economic growth.

From the US perspective, Indian purchases of Russian oil undermine efforts to squeeze Russia’s energy revenue and prolong the Ukraine war. The additional US tariffs announced against India specifically cite this issue as justification, and Washington has repeatedly signalled that Indian oil purchases will remain a source of friction until they are reduced.

For investors, the Russian oil situation is worth watching because it could either be resolved through negotiations or become the basis for continued tariff escalation. Indian oil refiners including Reliance Industries, Indian Oil, and Bharat Petroleum are the most directly exposed. Broader Indian equities could face pressure if the situation escalates further.

Foreign Direct Investment Flows

US-India investment flows have grown steadily. US foreign direct investment into India totalled approximately $57 billion cumulatively by 2025, with major US corporations including Amazon, Walmart, Microsoft, Google, and Meta all making significant Indian investments. The country has emerged as one of the largest recipients of US venture capital investment outside the US itself.

Indian investment into the US is smaller in absolute terms but growing rapidly. Tata Group is one of the largest single foreign investors in the US, with operations across steel (Tata Steel), automotive (Jaguar Land Rover in the US), IT services (TCS), and consumer goods. Reliance Industries, Adani Group, and Mahindra all have expanding US footprints. Indian pharmaceutical companies have built significant US manufacturing operations to serve local markets and reduce tariff exposure.

FDI is likely to continue expanding regardless of tariff tensions. The two economies are simply too large and complementary for corporate integration to reverse. However, tariff uncertainty may slow the pace of some announcements and shift the geographic distribution of investments.

Geopolitics: The Complicated Balance

India occupies a distinctive position in global geopolitics. It is a member of the Quad security dialogue alongside the US, Japan, and Australia. It is a founding member of BRICS alongside China, Russia, and Brazil. It maintains close relationships with both the US and Russia. It is one of the largest importers of Russian arms and one of the largest recipients of US technology transfers.

This strategic non-alignment is often summarised as India pursuing its own interests without fully aligning with either the US-led or China-Russia-led blocs. Prime Minister Narendra Modi has been particularly skilled at maintaining this balance, cultivating strong relationships with US leaders while preserving Indian autonomy on issues like Russian oil.

For investors, India’s geopolitical positioning matters because it shapes which markets absorb Indian production, which sources of capital are accessible, and how vulnerable Indian companies are to secondary sanctions or export controls. A more US-aligned India would benefit from deeper Western integration but face greater exposure to US-China trade fragmentation. A more independent India preserves diversified access but faces continued friction with US policy.

Future Outlook: Where the Relationship Is Headed

Several factors will shape US-India trade over the coming quarters:

• The formal Trade Deal. Announcements around pharmaceutical, engineering, and jewellery tariff rationalisation were not on the table in September 2025 and continue to progress. The final structure and effective dates will significantly affect sector-specific outlooks.
• The Section 232 pharmaceutical decision. Whether generics remain exempted from pharmaceutical tariffs is one of the highest-stakes decisions for Indian pharma companies and US healthcare costs.
• The Russian oil situation. Any reduction in Indian purchases of Russian crude could ease the additional penalty tariffs. Continued high volumes could escalate them further.
• India’s electronics and semiconductor buildout. Success at Micron’s Gujarat facility, Foxconn’s iPhone operations, and other electronics projects will determine whether India becomes a serious competitor to Vietnam and Taiwan in higher-value manufacturing.
• US immigration policy. Changes to H-1B visa programmes affect Indian IT services companies and their US clients. Restrictive changes could accelerate automation and offshoring of work back to India.
• China dynamics. India is a beneficiary of Western decoupling from China. Any warming of US-China relations could reduce India’s structural advantage.
• Domestic Indian politics. India’s political stability and policy continuity is a significant differentiator versus other emerging markets. Watch for any changes in the Modi government’s economic priorities.

Sector Implications and DCSC

The US-India corridor cuts across some of the most important sectors of global trade, from pharmaceuticals and IT services to gems and jewellery, textiles, engineering goods, and increasingly semiconductors and electronics. DCSC’s Dynamic Company Sector Classification system tracks over 1,500 sectors, giving investors the granularity to map their portfolio exposure to specific industries affected by the US-India relationship.

Key sectors to explore include pharmaceuticals (generics and specialty), IT services and business process outsourcing, gems and jewellery, textiles and apparel, engineering goods, chemicals, electronics manufacturing, semiconductors, and oil refining. Each has distinct dynamics within the current tariff regime and different exposure to political, geopolitical, and structural risks.

The US-India relationship is likely to remain one of the most consequential and volatile trade corridors through 2026 and beyond. For investors, understanding both the immediate tariff picture and the broader structural drivers is essential for navigating what will be one of the defining bilateral stories of this decade.

Explore the full sector taxonomy at dcsc.ai.