In a major development that could reshape global trade dynamics, the United States and India have reached a bilateral trade agreement that dramatically reduces long-standing tariff barriers and signals deeper economic cooperation between the world’s two largest democracies. The deal, announced in early February 2026 after a phone conversation between U.S. President Donald Trump and Indian Prime Minister Narendra Modi, lowers U.S. tariffs on Indian products to 18 per cent, down from levels that had effectively soared to as much as 50 per cent due to punitive levies linked to India’s energy purchases.
President Trump said on social media that “out of friendship and respect” with Prime Minister Modi, the United States would apply the reduced reciprocal tariff immediately. A White House official confirmed that in addition to cutting the base tariff rate, the U.S. is removing a separate 25 per cent penalty tariff imposed earlier in response to India’s crude oil imports from Russia.
Prime Minister Modi welcomed the tariff reduction, telling supporters that “Made in India products will now face lower barriers” and thanking President Trump for the move. Indian officials and industry leaders said the reduction will help exporters regain competitiveness in the American market after months of trade tensions that had battered sectors such as textiles, apparel, leather, engineering goods and marine products.
Analysts say that the tariff cut could breathe life back into Indian exports, which had struggled under an escalating U.S. tariff regime introduced in 2025 amid disagreements over energy policy. Last year, Washington doubled tariffs on Indian goods, partly to pressure New Delhi to reduce purchases of discounted Russian crude oil, which the U.S. administration viewed as undercutting sanctions on Moscow following its invasion of Ukraine.
A key element of the new understanding involves India’s energy sourcing. According to U.S. statements, India agreed to curtail, and ultimately halt, its purchases of Russian oil, instead increasing imports from the United States and potentially other suppliers such as Venezuela. This shift is seen by U.S. officials as both a commercial opportunity for American energy producers and a strategic move to weaken Russia’s oil revenues.
However, industry sources in India caution that refiners will need time to wind down existing Russian oil contracts even as the new trade framework takes shape. They say that while official government directives to stop Russian crude have not yet been issued, refiners are already diversifying their sources, increasing supplies from the Middle East, Africa and South America as part of a broader transition.
The deal also includes provisions under which India could lower or eliminate tariffs and non-tariff barriers on U.S. goods, although specific product-level details are still being worked out. President Trump has touted the agreement as not only lowering barriers for Indian exports but also encouraging New Delhi to buy American energy, technology, agricultural products and coal, commitments that could reach hundreds of billions of dollars over time, according to some U.S. commentary.
Financial markets responded positively to the announcement. Indian shares were set to open near record highs following the news, while the Indian rupee strengthened in non-deliverable forward trading, reflecting renewed investor confidence after months of volatility tied to tariff uncertainties.
Despite the optimism, some experts urge caution, noting that no formal treaty text has yet been published and that several aspects of the deal, including the timing of energy purchases and implementation of zero tariffs on U.S. goods, remain subject to future negotiations. Still, the agreement is broadly viewed as a breakthrough in U.S.-India economic relations, potentially setting the stage for deeper engagement on trade, investment and strategic cooperation in the years ahead.
