India Faces Less Pressure to Finalize U.S. Trade Deal Following Midterm Elections, Emkay Global Says

NEW DELHI–India may face less urgency to finalize a trade agreement with the United States following the Democratic Party’s gains in the U.S. midterm elections, which ended unified Republican control of Congress and could limit President Donald Trump’s ability to escalate trade tensions, according to a report released Thursday by Emkay Global Financial Services.

The report suggested that the changing political environment in Washington, combined with lower tariffs on Indian goods and declining global crude oil prices, could improve India’s economic outlook while reducing the immediate pressure to negotiate a trade agreement.

According to Emkay Global, a previously proposed 18 percent U.S. tariff framework rate was never implemented, while Indian exports now face a lower 10 percent duty under Section 301 of U.S. trade law.

The report also noted that the Trump administration has lost its ability to use the International Emergency Economic Powers Act (IEEPA) as a source of tariff leverage, potentially limiting its options for imposing sudden 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 argued.

With Democrats gaining control of Congress, the administration could face greater pressure to prioritize economic affordability and reach trade agreements rather than pursue additional tariff increases.

Emkay Global said future tariff escalations would likely require the administration to rely on established trade mechanisms, including Section 301 and Section 232 investigations.

Those procedures generally involve formal reviews and investigations, making them slower than emergency-based tariff actions and potentially reducing the likelihood of unexpected trade restrictions.

However, the report cautioned that the President retains considerable executive authority over trade policy, leaving room for continued uncertainty.

“Trade remains one of the few areas he (Trump) controls alone, however, so headline volatility will persist even as the bias softens,” the report mentioned.

The financial services firm identified potential U.S. tariffs on pharmaceuticals and electronics under Section 232 as significant risks for Indian exporters.

It also warned that setbacks in diplomatic negotiations involving Russia or Iran could renew American pressure on India over its purchases of Russian oil and other energy imports.

Despite those uncertainties, the report suggested that reduced tariff volatility, a weaker U.S. dollar and falling crude oil prices could create more favorable conditions for India’s currency and export industries.

Lower trade-related risks could gradually reduce the additional returns investors demand for holding Indian assets, although Emkay Global did not anticipate a sudden or substantial market revaluation.

The decline in global oil prices was identified as another important development for the Indian economy.

According to the report, Brent crude prices have fallen approximately 19 percent from their recent October 2026 highs, reaching about $95 per barrel as geopolitical risk premiums began to ease.

The decline could provide significant relief to India, which depends heavily on imported crude oil to meet domestic energy demand.

India’s oil import bill has increased 24 percent during the current fiscal year to date, with Brent crude averaging approximately $97 per barrel, according to Emkay Global.

Lower energy prices could help reduce import costs, ease inflationary pressures and improve the country’s external financial position.

The report also said declining crude prices could provide additional flexibility to the Reserve Bank of India, which has faced increasing costs from interventions aimed at stabilizing the rupee in foreign exchange markets.

However, Emkay Global cautioned that the central bank’s ability to allow substantial currency appreciation could remain limited by India’s external financing requirements and existing foreign exchange obligations.

“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 firm suggested that the RBI could prioritize strengthening its foreign exchange reserves and rebuilding financial buffers rather than allowing the rupee to appreciate sharply.

Continued demand for financing India’s current account deficit could also limit the benefits of lower crude prices and improving capital flows.

Another factor influencing India’s financial outlook is the direction of U.S. monetary policy.

Emkay Global noted that persistent inflation in the United States could keep American interest rates elevated even if the Federal Reserve continues to make gradual adjustments to monetary policy.

Higher U.S. interest rates can influence global investment flows and currency movements, requiring the RBI to remain cautious when managing domestic monetary conditions.

Overall, the report suggested that the midterm election results could give India greater flexibility in its trade negotiations with Washington while improving the broader economic environment.

Although the Trump administration retains significant influence over U.S. trade policy, the combination of political constraints, softer oil prices and reduced tariff uncertainty could strengthen India’s negotiating position and provide some relief to its currency and export sectors. (Source: IANS)