Indonesia-Style, India-focused: Will a New US Trade Deal Reshape Sectoral Bets for Indian Markets?

Earlier this month, the US President Donald Trump struck a “mini” trade deal with Indonesia: think of it as a diplomatic handshake with billion-dollar implications. The United States slashed proposed tariffs on Indonesian exports from 32% to 19%, and in return, Indonesia opened its doors to tariffs-free American goods and pledged to buy $15 billion worth of US energy, $4.5 billion agricultural products and 50 shiny new Boeing jets. Now, imagine a similar deal, but this time with India in the hot seat. That’s exactly what’s brewing in Washington right now. India and the US are in the thick of negotiating a bilateral trade pact that mirrors the US-Indonesia model—but with a twist. India wants sweeter terms: lower tariffs (below 10%) and zero compromise on sensitive sectors like dairy and agriculture.

The fifth round of talks is currently underway and if things go well, the ripple effects could be massive across several Indian industries. So, what’s at stake and who stands to gain or lose if this deal clicks into place? Let’s talk about sector-wise impact.

Potential Sectoral Impact of Trade Talks on Different Sectors

Here is how a positive outcome from the tariff talks could impact different sectors in India:

Textile Industry

The proposed trade deal aims to reduce tariffs on Indian textiles to below 20%, compared to the 26% initially proposed by the US. This would give Indian exporters a pricing advantage over competitors like Vietnam and Bangladesh, whose tariff rates are expected to remain at or above 20%. Such relief could boost India’s share in the $107 billion US textile import market.

Engineering Goods

Engineering exports to the US, worth ₹1.6 lakh crore, face risks from the 50% US tariff hike on steel and aluminium, which together constitute 25% of India’s engineering exports. The Engineering Export Promotion Council (EEPC) warns that this could disrupt trade flows and impact over 25,000 MSMEs.

However, if the deal proceeds favourably, Indian engineering components, auto parts and processed goods could enjoy a pricing edge that helps exporters gain market share from Southeast Asian and Latin American rivals.

Auto Component Manufacturers

The US, India’s largest export market for auto parts, accounted for 32% of India’s $22.9 billion auto component exports in FY25, up 8% from FY24 . However, recent 26% reciprocal US tariffs on Indian auto components threaten to erode ₹2,700–₹4,500 crore in operating profits, impacting margins for 10–15% of exporters.

If the deal lifts or reduces these tariffs, Indian exporters could regain competitiveness, especially in engine and transmission systems, which make up more than half of exports.

Pharmaceuticals

India exported approximately $8 billion worth of pharmaceutical products to the US in 2023, accounting for 31% of its total pharma export s. However, the US is pushing for stricter intellectual property enforcement, including faster patent approvals and stronger trade secret protections. This could affect India’s generics segment, particularly for drugs nearing patent expiration. The USTR report flagged delays in trademark opposition and weak enforcement of undisclosed test data. While tariff relief may boost short-term volumes, regulatory compliance costs could offset gains, unless India negotiates phased implementation.

Dairy Sector

The State Bank of India estimates that opening up India’s dairy sector to US imports could result in a 15% decline in domestic milk prices. This will lead to an annual loss of ₹1.03 lakh crore for Indian farmers. The US dairy industry, backed by $8 billion in exports and extensive subsidies, poses a serious threat to India’s 8 crore dairy workers .

India has drawn a red line on 'non-veg milk', sourced from cows fed animal-based products, due to cultural and religious concerns. However, the US has challenged India’s certification requirements at the WTO.

Electronics Sector

India’s electronics exports to the US exceeded $6.6 billion in 2023 . With tariff reductions similar to those granted to Indonesia, Indian manufacturers may gain parity with Southeast Asian competitors. Currently, companies such as Dixon Technologies and Bhagwati Products have reportedly suspended US orders, pending clarification of tariffs.

A favourable deal could revive demand for smartphones, semiconductors and consumer electronics.

Gems and Jewellery Sector

India’s gems and jewellery exports to the US reached $3 billion in January 2025, with cut diamonds accounting for 45% of the share. The sector is lobbying for a reduction in import duties, from 5% to 2.5% on polished and lab-grown diamonds, and from 20% to 17% on gold jewellery. Without these concessions, orders may shift to Thailand and Israel, which already enjoy preferential access. The Gems and Jewellery Export Promotion Council warns of potential job losses in Surat and Mumbai if the deal does not include sector-specific relief.

Steel and Aluminium

In FY25, India exported $4.56 billion worth of iron, steel and aluminium products to the US. However, the US doubled tariffs to 50 % from June 4, 2025, prompting India to propose retaliatory duties worth $3.82 billion under WTO norms. Domestically, steel demand grew 10–13% annually (FY22–FY24), but India turned a net importer in FY25 due to cheaper global supply. Aluminium exports, accounting for 40% of domestic output, face higher risk, with 6–8% going to the US . While India remains a low-cost aluminium producer, tariff cuts may flood the market with diverted global surplus, pressuring margins and threatening small units reliant on exports.

The Bottom Line: Big Bets, Bigger Stakes

If India pulls off a trade deal that’s even more favourable than the US-Indonesia pact, it could be a game-changer for the country’s export playbook. From textiles to tech hardware, Indian industries could ride a wave of fresh demand, sharper pricing power and a bigger slice of the global market. However, this won’t be a free ride for everyone.

While sectors like engineering goods and auto components may pop the champagne, others, especially dairy and pharma, will need careful steering to avoid domestic fallout. The real challenge? Striking that perfect balance between global ambition and local protection.

If the deal gets inked, expect a major reshuffling of sectoral fortunes, and perhaps a bold new chapter in India’s trade story.

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