The United States and India are finally sharing a common ground as a massive agreement dramatically reduces US tariffs on Indian exports.
Announced by US President Donald Trump on Monday after a direct conversation with Prime Minister Narendra Modi, the deal lowers American tariffs on Indian goods to 18 per cent, down from a combined rate that had reached as high as 50 per cent only months earlier.
The trade deal significantly alters India’s position within Washington’s tariff architecture for Asia, placing it closer to treaty-aligned partners such as Japan, South Korea and the European Union, and distancing it from other emerging economies that continue to face higher US duties.
How US tariffs on India went from 50% to 18%
In June last year, the Trump administration
imposed a 25 per cent tariff on Indian goods, citing dissatisfaction with the pace at which India was reducing its trade surplus with the United States and opening domestic markets to American exporters.
That initial measure was followed in August by a further 25 per cent duty, explicitly linked to India’s continued purchases of Russian crude oil.
The additional levy pushed the total tariff burden on Indian exports to 50 per cent, placing India among the most heavily penalised US trading partners despite its growing strategic importance to Washington.
The Trump administration argued that the penalties were intended to address two separate concerns. The first was what US officials described as insufficient progress on trade reciprocity, including high Indian import taxes and non-tariff barriers.
The second was India’s energy relationship with Russia, which increased after
Moscow’s February 2022 invasion of Ukraine.
While Russia historically accounted for only a small share of India’s oil imports, New Delhi sharply increased purchases of discounted Russian crude in the aftermath of the invasion.
The strategy allowed India to manage domestic energy costs while Russia sought alternative buyers as Western countries imposed sanctions and attempted to isolate Moscow economically.
Trump has repeatedly said that cutting off Russia’s oil income is central to forcing an end to the war. Since returning to office, he has relied heavily on tariffs as a mechanism to pursue both economic and foreign policy goals, frequently acting without congressional approval.
At the same time, he has faced criticism for being cautious in applying direct diplomatic pressure on Russian President Vladimir Putin.
Against this backdrop, India became a focal point of US pressure, even as American officials continued to describe the country as a crucial geopolitical and economic counterweight to China.
How a breakthrough was achieved
Under the new arrangement, the United States will lower its effective tariff rate on Indian goods to 18 per cent, dismantling the punitive structure imposed in 2025.
A White House official said the US would remove the additional 25 per cent duty that had been applied specifically because of India’s Russian oil purchases.
With all measures rolled back and replaced by a single lower rate, India’s exporters will now face a tariff burden broadly comparable to that of several US allies and close partners.
Trump announced the decision on social media, linking it directly to India’s energy commitments and trade concessions. In a Truth Social post, he said the move would contribute to ending the conflict in Ukraine, writing, “This will help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week!”
According to Trump, India agreed to halt purchases of Russian oil and instead source energy from the United States, with the possibility of additional supplies from Venezuela.
“It was an Honor to speak with Prime Minister Modi, of India, this morning… He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela. This will help END THE WAR in Ukraine” – President Donald J. Trump 🇺🇸 pic.twitter.com/RD7PZ8S16z
— The White House (@WhiteHouse) February 2, 2026
He also said India would move toward eliminating import taxes on US goods and commit to buying $500 billion worth of American products.
Modi welcomed the announcement, responding publicly on X. He said he was “delighted” by the tariff reduction and described Trump’s role in broader global terms, stating that the US president’s “leadership is vital for global peace, stability, and prosperity.”
Modi added, “I look forward to working closely with him to take our partnership to unprecedented heights.”
Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement.
When two large economies and the…
— Narendra Modi (@narendramodi) February 2, 2026
The announcement came shortly after Trump posted a photograph of himself and Modi on the cover of a magazine, hinting earlier in the day at a positive exchange between the two leaders.
How India now compares with Asian economies under US tariffs
With the revised rate of 18 per cent, India
now occupies a markedly different position within the US tariff framework for Asia. The new level places India within a narrow band of countries facing tariffs between 15 per cent and 19 per cent, a category that includes several major US trading partners.
China, by contrast, remains subject to some of the highest duties imposed by Washington. Effective US tariffs on Chinese goods range from 34 per cent to 37 per cent, reflecting a combination of a baseline rate, additional duties linked to fentanyl trafficking concerns, and pre-existing measures under Sections 301 and 232.
Several Southeast and South Asian economies continue to face higher tariffs than India. Vietnam and Bangladesh are subject to a standard reciprocal rate of 20 per cent, while Pakistan, Malaysia and Thailand face duties of around 19 per cent.
Cambodia also falls within this range. Taiwan remains at 20 per cent, while Laos and Myanmar are subject to substantially higher tariffs of 40 per cent, reflecting their placement in a more punitive tier.
Outside Asia, some of the steepest US tariffs apply to Brazil at 50 per cent and South Africa at 30 per cent.
By comparison, the countries enjoying the lowest tariff treatment from the United States include the United Kingdom at 10 per cent, and the European Union, Switzerland, Japan and South Korea at approximately 15 per cent.
Why the US tariff shift matters to India in Asia
By narrowing the US tariff gap between India and China, the agreement strengthens incentives for companies
pursuing “China Plus One” strategies to relocate manufacturing.
In labour-intensive sectors such as textiles, apparel and footwear, where profit margins often range between 3 per cent and 5 per cent, even small tariff differences can be decisive. India’s lower tariff rate relative to Vietnam and Bangladesh may tilt sourcing decisions toward Indian manufacturing hubs.
At the same time, the continued exemption of pharmaceuticals, semiconductors and critical minerals from tariffs reinforces India’s appeal as a diversified production base rather than a single-sector alternative.
For the first time since the tariff escalations began in 2025, India has moved out of the emerging-market tariff bracket and closer to the group of countries viewed by Washington as preferred economic partners.
Where India-US trade stands for now
One of the most striking elements of the deal is India’s pledge to purchase $500 billion worth of US goods over the coming years. The commitment spans energy, technology and agricultural products and is intended to significantly expand American exports to the Indian market.
In 2024, US goods exports to India were valued at $41.5 billion. The new target represents a substantial increase, effectively tripling current levels over time.
Unlike trade agreements with Japan and South Korea, which included explicit commitments to invest hundreds of billions of dollars into US industries, the India deal does not mention specific investment figures. Instead, it focuses on procurement and market access as the primary mechanisms for rebalancing trade.
Total bilateral trade in 2025 is estimated to have exceeded $230 billion, building on the $212.3 billion recorded in 2024. The two countries have now formally set a goal of reaching $500 billion in total trade by 2030.
In merchandise trade, India remains a major exporter to the United States. During the April-August 2025 period, Indian goods exports averaged between $7 billion and $8 billion per month. In November 2025 alone, exports reached $6.98 billion.
Engineering goods account for roughly 25 per cent of India’s exports to the US. Pharmaceuticals also remain a significant contributor, benefiting from tariff exemptions that continue to apply to the sector.
On the other side of the ledger, the US recorded a $53.5 billion trade imbalance in goods with India during the first 11 months of last year, reflecting higher imports than exports.
Services trade plays an increasingly important role in balancing the relationship. In 2024, total services trade reached $83.4 billion, with a marginal US surplus of $102 million.
Indian services exports are led by IT and business process management, while US exports to India include financial services, intellectual property licensing and education.
Agricultural trade has also gained momentum. US agricultural exports to India rose to approximately $1.7 billion in 2025, driven by strong demand for almonds, pistachios, cotton and soybean oil.
What next on the India-US trade deal
Trump said India would move toward reducing import taxes on American goods to zero, a step that would represent a significant shift in India’s traditionally protectionist trade posture.
The US has been seeking near-total tariff elimination on its exports to India, particularly in sectors such as agriculture, energy and technology.
Indian officials, however, have repeatedly expressed concerns about opening up sensitive areas of the economy, especially agriculture and dairy, which provide livelihoods to a large portion of the population.
Those reservations remain relevant as the agreement moves toward implementation. While India has committed to lowering barriers, the precise timeline and scope of zero-tariff access have not yet been disclosed.
Previous negotiations between the two sides have been described as difficult. Despite early optimism, talks last year failed to produce immediate results, and the tariffs imposed by the Trump administration initially did little to change India’s stance.
US Trade Representative Jamieson Greer said recently that India had “made a lot of progress” in reducing Russian oil purchases but cautioned that “they still have a way to go on this point”.
In recent months, New Delhi has accelerated efforts to conclude multiple trade agreements as global trade flows adjust to tariff disruptions.
Days before the US tariff reduction was announced, India and the European Union
finalised a long-awaited free trade agreement after nearly two decades of negotiations. India has also signed a trade agreement
with Oman and concluded
negotiations with New Zealand.
The EU deal, in particular, has been seen as part of a broader effort by major economies to reduce dependence on the United States after Trump’s tariff hikes disrupted established trade patterns.
While studies suggest that the costs of US tariffs have largely been absorbed by American businesses and consumers, the measures have also reduced trade volumes and encouraged alternative partnerships.
Details of the India-US trade agreement, including the exact scale of India’s energy shift and increased agricultural imports from the US, are still awaited.
With inputs from agencies
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