A new interim trade framework between the United States and India is set to provide a significant boost to Indian auto parts exports, offering substantial tariff relief and improved market access. This agreement marks a turning point after nearly a year of escalating tariffs that had pushed duties on Indian goods up to 50%. The recent announcement slashes these tariffs to 18% and unlocks a US$500 billion purchasing commitment.

Under this framework, Indian exporters are poised to benefit from a preferential tariff-rate quota for automotive parts that were previously subject to US national security tariffs. These tariffs included duties imposed under Section 232, which had placed a 25% levy on various categories of car parts. Certain commercial vehicle and tractor components faced even higher reciprocal tariffs. The shift to lower and more predictable rates is expected to significantly enhance the competitiveness of Indian-made engine components, transmission parts, forgings, and precision castings.

Commerce and Industry Minister Piyush Goyal stated that some categories of auto component exports from India would attract zero duty under the new framework. He noted that around 50% of auto part exports would be duty-free, while others would face an 18% tariff.

The Automotive Component Manufacturers Association of India (ACMA) views the framework as a strong indication of intent to strengthen bilateral manufacturing ties. Vikrampati Singhania, President of Acma, stated that the commitments on preferential tariff-rate quotas, the removal of select Section 232 tariffs, and a roadmap for further rationalization under the bilateral trade agreement (BTA) are positive developments for the sector. He added that these measures would enhance export competitiveness, deepen technology collaboration, and reinforce India's role as a trusted partner in resilient global automotive supply chains.

The US is India's single largest export destination for auto parts, accounting for approximately $6.18 billion, or nearly 27%, of India's $22.9 billion in auto component exports in 2025. In contrast, India's imports of US auto components stood at about $1.57 billion, roughly 7% of total component imports. This asymmetry underscores the significance of tariff relief and predictability in the US market for Indian suppliers.

The interim framework is also expected to protect the domestic automobile manufacturing base while offering clearer market access and tariff relief for auto component exporters. It does not provide broad tariff concessions for fully built vehicle imports, preserving incentives for local manufacturing and investment.

The tariff reductions from 50% to 18% directly improve price competitiveness and order conversion in the US market for Indian capital goods and industrial companies with existing US exposure.

This framework also addresses long-standing US concerns regarding market access and trade barriers. India has committed to eliminate or reduce tariffs on all US industrial goods and a wide range of agricultural products. This includes items such as animal feed, soybean oil, fruits, nuts, wine, and spirits.

The White House has indicated that this decision reflects India's alignment with US national security and foreign policy objectives, including a ten-year defense cooperation framework and India's intent to purchase US $500 billion worth of US energy products, aircraft and aircraft parts, technology goods, and other commodities over the next five years.