NEW DELHI–India may face less urgency to finalize a trade agreement with the United States following the U.S. midterm elections, which ended unified Republican control of Congress and could limit President Donald Trump’s ability to pursue aggressive new trade measures, according to a report released Thursday.
The analysis by Emkay Global Financial Services suggests that the changing political environment in Washington could give India greater flexibility in trade negotiations while reducing the risk of sudden tariff increases.
The report noted that a previously proposed 18% U.S. tariff framework rate was never implemented. Instead, Indian exports currently face a lower 10% duty under Section 301 of U.S. trade law.
It also argued that the United States has lost its ability to use the International Emergency Economic Powers Act (IEEPA) as a tool for imposing tariffs, potentially limiting the administration’s options for rapidly escalating trade restrictions.
“The midterms outcome probably will not change the tariff structure much, but it will change Trump’s incentives: fewer new escalation tools, more pressure to deliver consumer affordability, and deals before 2028,” the report stated.
According to Emkay, future tariff increases would likely need to proceed through Section 301 or Section 232 investigations, which generally involve more extensive procedural requirements.
That could reduce the likelihood of unexpected tariff announcements and provide greater predictability for Indian exporters and financial markets.
However, the report cautioned that trade policy remains an area where the U.S. President retains considerable executive authority.
“Trade remains one of the few areas he (Trump) controls alone, however, so headline volatility will persist even as the bias softens,” the report noted.
Potential risks include additional U.S. tariffs on pharmaceutical and electronics products under Section 232, which could affect major Indian export industries.
The report also identified geopolitical developments involving Russia and Iran as possible sources of renewed trade pressure, particularly if Washington increases scrutiny of India’s crude oil imports.
Beyond trade negotiations, Emkay said declining global oil prices and a weaker U.S. dollar could improve India’s broader economic outlook.
Brent crude prices have fallen approximately 19% from their October 2026 highs to around $95 per barrel as concerns about geopolitical supply disruptions have eased.
Lower oil prices could provide significant relief for India, which depends heavily on imported energy.
The country’s oil import bill has increased 24% during the current fiscal year to date, with Brent crude averaging approximately $97 per barrel, according to the report.
A sustained decline in crude prices could reduce import costs, ease inflationary pressures and support the Indian rupee.
The analysis suggested that reduced tariff uncertainty, combined with lower energy prices, could gradually improve investor confidence in Indian assets and strengthen the outlook for exporters.
The developments could also provide some relief to the Reserve Bank of India (RBI), which has faced mounting costs associated with managing currency volatility.
However, Emkay cautioned that the central bank’s ability to benefit from improved foreign exchange conditions may remain constrained.
“That relief will be limited, however. Ongoing CAD funding needs and a hefty $239 billion forward dollar liability on the RBI’s books mean it is likely to use any durable inflows to rebuild reserves and its FX buffers, capping INR upside by policy choice,” the report said.
The report suggested that the RBI could prioritize rebuilding foreign exchange reserves over allowing substantial appreciation of the rupee.
Persistent inflation in the United States also remains a concern, as it could keep American interest rates elevated even if the Federal Reserve continues gradually easing monetary policy.
Higher U.S. interest rates can affect capital flows into emerging markets, including India, requiring continued vigilance from the RBI.
Overall, Emkay’s assessment indicates that the U.S. midterm election results could improve India’s negotiating position by reducing the immediate threat of aggressive tariff escalation.
However, uncertainty surrounding U.S. trade policy, global interest rates and geopolitical developments could continue to influence India’s economic outlook and its negotiations with Washington. (Source: IANS)
