The year 2026 is less than two months old and already seems promising for trade deals. The ink has barely dried on the “mother of all trade agreements” – the free trade agreement between the European Union and India signed on January 27th – and another agreement is already taking center stage: Indian Prime Minister Narendra Modi and US President Donald Trump announced a landmark trade agreement on February 2nd, triggering a wave of optimism in the textile and clothing sector.
After a period of punitive tariffs that reached up to 50 percent due to geopolitical tensions, the reduction in reciprocal tariffs to 18 percent is being hailed as a crucial lifeline. For an industry that contributes significantly to India’s gross domestic product and employs millions of people, this agreement is more than just a financial adjustment; it is a restoration of India’s global position.
Restoring global competitiveness
The immediate mood in the industry associations is therefore one of deep relief. The high tariff wall had previously pushed Indian clothing out of the US market and allowed competitors in Southeast Asia to gain ground. According to Ashwin Chandran, Chairman of the Confederation of Indian Textile Industry (CITI), quoted in ANI News, the 18 percent rate will finally allow Indian manufacturers to breathe a sigh of relief: “This tariff reduction will ensure that our textile and apparel exporters are once again able to compete effectively in the US market. This is the single largest market for India’s textile and apparel exports.”
Beyond the balance sheets, the deal is expected to restart production engines in key centers such as Tiruppur and Noida. At the height of the tariff dispute, many factories were forced to operate at reduced capacity. This led to widespread concerns about job security. The CITI chairman further emphasized the social impact of the agreement, according to The Hindu, adding: “This agreement will also ensure that factories are back up to speed and job creation returns to previous levels.”
Strategic advantage over competitors in the region
Market analysts suggest that the new 18 percent tariff rate will give India a “marginal but significant” advantage over its closest competition. Countries like Bangladesh and Vietnam have long dominated the low-cost clothing sector. They currently face US tariffs of around 20 percent. According to reports in The Times of India, the industry sees this as a strategic opportunity: “At 18 percent, the levy on Indian apparel will be slightly lower than the 20 percent charged on products made in Bangladesh or Sri Lanka.”
Industry experts consider the timing right before the summer order cycle to be excellent and are hoping for a return to double-digit growth. In addition, the latest development prevents a long-term shift by Western buyers to other procurement destinations. Prabhu Dhamodharan, convener, Indian Texpreneurs Federation (ITF), gave an optimistic outlook on the recovery in Business Standard: “From FY27 onwards, the sector may witness double-digit monthly growth in apparel and home textile exports. This will take the monthly apparel export rate to $1.5-1.6 billion (€1.40-1.49 billion).”
Strengthening supply chains
The agreement is also seen as a catalyst for deeper investment in India’s manufacturing landscape. Large corporations with a significant presence in both countries see the agreement as a basis for more integrated business operations. “We see this agreement helping to shape more resilient supply chains, unlock manufacturing opportunities and promote long-term economic competitiveness in both the US and India,” commented Kumar Mangalam Birla, Chairman of Aditya Birla Group, according to The Hindu.
A cautious path forward
After the India-US trade deal remained stalled for months, Trump’s announcement surprised many. Others point to the pressure that the India-EU free trade agreement put on the Trump administration. Finally, the US economy would be hit hard if India bought more European goods instead of US ones.
However, the trade deal could come at a price. As already hinted at and reiterated by Trump in his social media post on Truth Social, the US could require India to stop importing crude oil from Russia. While Modi welcomed the announcement of reduced duty on Indian goods, he did not mention anything about crude oil imports from Russia.
For now, however, the mood in India is celebratory. Stock markets and the rupee have already gained on recent developments. “Although the devil is in the details, it removes a sword of Damocles over the rupee, stock and interest rate markets. Let’s hope it is a win-win deal for both countries,” summed up fund manager Nilesh Shah, according to the BBC.
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