ISLAMABAD: The United States and India have reached a significant tradeagreement that involves substantial tariff reductions and commitments toredirect energy imports, as announced by President Donald Trump following aphone conversation with Prime Minister Narendra Modi. The deal, describedas immediate in its implementation, lowers US reciprocal tariffs on Indiangoods from 25 per cent to 18 per cent while India agrees to move towardszero tariffs and non-tariff barriers on American products. Additionally,India has reportedly committed to halting purchases of Russian oil infavour of increased imports from the United States and potentiallyVenezuela, alongside a major “Buy American” initiative valued at over 500billion dollars in sectors including energy, technology, agriculture andcoal. This development comes amid ongoing global trade tensions and effortsto influence energy flows related to the Ukraine conflict.
President Trump’s announcement on his social media platform highlighted thepersonal rapport with Prime Minister Modi, framing the agreement as amutual request that strengthens bilateral ties. He emphasised that thetariff cut on Indian exports would take effect immediately, positioning itas a gesture of friendship. In exchange, India is expected to eliminatebarriers that have long been criticised by Washington as protectionist,allowing greater market access for US goods. Reports indicate that thisreciprocal arrangement addresses previous imbalances where India maintainedhigher duties on American imports compared to the reverse.
A key element of the pact involves India’s shift away from Russian crudeoil, which has been a discounted source for New Delhi amid internationalsanctions on Moscow. Trump claimed that Modi agreed to cease such purchasesto help end the war in Ukraine by reducing Russia’s revenue streams. Thispivot is intended to boost US energy exports, with India committing tosubstantially higher purchases of American oil and related products. Themove could stabilise India’s energy security through diversified suppliersbut raises concerns about potential cost increases, as Russian oil has beenacquired at lower prices in recent years.
The “Buy American” commitment forms a central pillar of the deal, withTrump stating that India would invest over 500 billion dollars in USenergy, technology, agricultural goods, coal and other categories. Thismassive procurement pledge aims to enhance American manufacturing andexports while deepening economic interdependence between the two nations.Analysts note that such large-scale commitments could provide long-termopportunities for US industries but might strain India’s fiscal resourcesand domestic production priorities over time.
Critics within India have expressed reservations about the terms, arguingthat the reduction in US tariffs from an effective higher rate to 18 percent offers limited relief compared to the concessions made. Thezero-tariff direction for US goods could expose Indian industries andfarmers to increased competition from cheaper American imports, potentiallyaffecting local manufacturing and agricultural sectors. Furthermore,abandoning affordable Russian oil might elevate energy costs for Indianconsumers and industries during a period of global volatility.
The agreement also reflects broader geopolitical dynamics, as the UnitedStates has sought to counter Russian influence through economic pressure oncountries continuing energy ties with Moscow. By securing India’s alignmenton oil purchases, Washington advances its foreign policy objectives whileoffering trade incentives. For India, the deal maintains strategicrelations with a key partner but may complicate its multi-aligned foreignpolicy, particularly with Russia as a long-standing defence and energysupplier.
Economic data suggests that bilateral trade between the US and India hasgrown significantly in recent years, with goods exchanges reachingsubstantial volumes. The tariff adjustments could further accelerate thistrend, benefiting exporters on both sides through reduced costs. However,the asymmetric nature of concessions has prompted discussions on whetherthe arrangement truly balances national interests or tilts towards oneparty.
Prime Minister Modi responded positively to the announcement, expressingdelight that “Made in India” products would now face a reduced 18 per centtariff in the US market. This sentiment underscores the potential gains forIndian exporters in sectors such as textiles, pharmaceuticals andinformation technology. Yet, the full implications for non-tariff barriersand the energy shift remain under scrutiny as details of implementationemerge.
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The pact arrives at a time when global supply chains are under strain fromgeopolitical conflicts and economic uncertainties. For India, diversifyingenergy sources could mitigate risks associated with over-reliance on anysingle supplier, while enhanced US market access supports export-led growthambitions. Nonetheless, the scale of commitments and the framing of thedeal have led to domestic debates on sovereignty and economic autonomy.
Observers anticipate that the agreement will undergo further negotiationsto formalise specifics, including timelines for tariff elimination andprocurement schedules. Its success will depend on effective execution andmutual adherence to the outlined terms.
Source: https://www.cnbc.com/2026/02/02/trump-india-trade-deal-tariffs.html
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