US President Donald Trump announced a historic trade agreement with India on Monday, February 2, 2026, following a decisive phone conversation with Prime Minister Narendra Modi.
The deal immediately slashes the steep 50% tariff previously faced by Indian exports down to 18%, a move that includes dropping the 25% punitive levy linked to India’s purchase of Russian oil.
In exchange, the White House claims India has agreed to cease Russian oil imports entirely, shift its energy focus toward the US and Venezuela, and eliminate its own tariffs on American goods to “zero.”
This breakthrough ends nearly a year of economic friction, positioning Indian goods with a competitive edge over regional rivals like Vietnam and Pakistan.
India US Trade Deal
The agreement serves as a major de-escalation after a year of “rancorous negotiations” during which bilateral ties plummeted to their lowest point in decades.
In August 2025, the Trump administration had imposed a massive 50% tariff on Indian goods, consisting of a 25% reciprocal tariff and an additional 25% penalty for New Delhi’s continued trade with Moscow.
The new 18% rate not only dismantles this punitive regime but also makes Indian exports more competitive than those from Bangladesh (20%) and Vietnam (20%).
This development closely follows India’s recent signing of a sweeping trade deal with the European Union and the introduction of tax holidays in the 2026 Union Budget for American tech firms setting up data centres in India.
Diplomatic Triumphs
President Trump hailed the deal on Truth Social, stating it was reached “out of friendship and respect” for PM Modi, whom he described as a “powerful and respected leader.”
Trump further claimed that India has committed to a massive $500 billion purchase of American energy, technology, and agricultural products to help “end the war in Ukraine.”
While Prime Minister Modi expressed his “big thanks” on X, noting he was “delighted that Made in India products will now have a reduced tariff,” he remained silent on the specifics of the Russian oil halt.
Meanwhile, Union Minister Piyush Goyal described the pact as a “historic turning point” for Viksit Bharat 2047, and US Ambassador Sergio Gor celebrated the “limitless potential” of the partnership.
Home Minister Amit Shah took to X to express gratitude calling the India-US trade dead historic “which will elevate our strategic partnership and greatly benefit both nations and their people. Business between India and US set to flourish further.”
India’s Competitive Edge
The new 18% tariff significantly boosts India’s global competitiveness, placing it in an advantageous position compared to other major export-led economies. While the US maintains a staggering 34% to 37% tariff on Chinese goods, India’s regional rivals, Vietnam and Bangladesh, remain at a 20% rate.
Similarly, Indonesia and Pakistan currently face a 19% tariff burden. This shift makes Indian exports, particularly in thin-margin sectors like textiles and electronics, more attractive to American buyers.
Among emerging markets, India now trails only South Korea, Japan, and the UK, effectively cementing its role as a preferred alternative to the traditional manufacturing dominance of China.
| Country | New Tariff Rate | Previous Rate (2025) | Key Competitive Status |
| India | 18% | 50% | Lowest in the region |
| Indonesia | 19% | 19% | 1% higher than India |
| Pakistan | 19% | 19% | 1% higher than India |
| Vietnam | 20% | 20% | 2% higher than India |
| Bangladesh | 20% | 20% | 2% higher than India |
| China | 34%–37% | 34% | Over 2x higher than India |
The Logical Indian’s Perspective
At The Logical Indian, we believe that while the reduction of tariffs is a massive victory for Indian exporters and the thousands of MSMEs whose survival was at stake, the cost of this economic relief warrants careful reflection.
A partnership between the world’s two largest democracies should ideally be rooted in mutual respect for sovereign strategic choices rather than transactional mandates.
While shifting toward cleaner or more diverse energy sources is a positive step, the pressure to abruptly sever long-standing ties raises questions about India’s long-term strategic autonomy. We hope this deal leads to genuine shared prosperity that prioritises the welfare of the common citizen over geopolitical chess moves.
News in Q&A
1. What exactly changed with the tariffs?
The total US tariff on Indian goods has plummeted from 50% to 18%. This is a combination of the “reciprocal tariff” being cut from 25% to 18% and the complete removal of a separate 25% penalty that had been imposed due to India’s purchase of Russian oil.
2. Is India really stopping Russian oil imports?
According to President Trump, the answer is yes. He stated that PM Modi “agreed to stop buying Russian Oil” to help end the war in Ukraine. While PM Modi’s official statement did not explicitly mention this “oil-for-trade” swap, White House officials have clarified that the tariff relief was contingent on India ceasing, not just reducing, Russian oil purchases.
3. How does this impact the “Made in India” brand?
It is a massive boost. At 18%, Indian exports now face lower barriers than regional rivals like Vietnam (20%), Bangladesh (20%), and Pakistan (19%). This gives Indian textiles, leather, and machinery a distinct competitive edge in the world’s largest consumer market.
4. What did India give up in return?
Beyond the oil shift, India has reportedly committed to reducing its own tariffs and non-tariff barriers on American products toward “zero.” Additionally, President Trump claims India will purchase over $500 billion in American energy, technology, and agricultural products.
5. Why does this matter for the average citizen?
For Indians, it could mean more jobs in export sectors but potentially higher fuel prices as the country shifts from discounted Russian crude to market-priced American oil. For the world, it signals a major shift in the global “energy map” and a tightening of the US-India strategic embrace.
