The announcements by both U.S. President Donald Trump and Prime Minister Narendra Modi that the U.S. will reduce “reciprocal” tariffs on India from 25% to 18% are a major relief to Indian exporters, and indicate relations between the two countries are on the mend, after a year of severe tensions.
A U.S. Embassy spokesperson also confirmed that a 25% penalty tariff imposed on India last August, which had pushed total tariffs to 50%, the highest on any country in the world along with Brazil, has now been dropped.
“Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%,” Mr. Trump announced first, adding in a lengthy social media post, that India had agreed to several measures, including stopping Russian oil imports, reduce tariffs and non-tariff barriers “to Zero”, and buying U.S. goods including energy of more than $500 billion.
In his response, Mr. Modi did not refer to any of the conditions mentioned by Mr. Trump, nor did he give details of the trade deal.
“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,” Mr. Modi said in a post. “When two large economies and the world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation,” he added.
The move on slashing U.S. tariffs, which was made during External Affairs Minister S. Jaishankar’s visit to Washington to attend a Critical Minerals Ministerial meeting, and a few weeks after U.S. Ambassador Sergio Gor arrived in Delhi, came after a telephone call between the two leaders, and has been welcomed by both governments and business chambers in both countries.
“Our amazing relationship with India will be even stronger going forward. Prime Minister Modi and I are two people that GET THINGS DONE, something that cannot be said for most...” Mr. Trump continued.
However, several differences remain between Mr. Trump’s version of the agreement and Mr. Modi’s version, which will need to be reconciled.
1. Where is the U.S.-India trade deal?
Mr. Trump’s reference to a trade deal leaves it unclear whether he is referring to a deal over cutting reciprocal tariffs or to the larger “first tranche” of the India-U.S. Free Trade Agreement (FTA) that has been negotiated between trade teams after PM Modi’s visit to Washington in February 2025. As a result of the FTA, both sides were expected to drop tariffs, but no details of the FTA, which includes tariffs and non-tariff barriers, market access and investments, have thus far been released by either government. Unlike the EU-India FTA concluded last week, the contours of the final India-U.S. agreement, the negotiated text, have not been disclosed.
Further, Mr. Trump’s claim that India would “reduce Tariffs and Non-Tariff Barriers against the United States, to ZERO”, has not been confirmed by New Delhi, nor has there been an explanation on which lines would reduce to zero. In addition, the question over market access especially in agricultural sectors like soyabean and dairy, which India has been reluctant to open, remains unanswered. In January, U.S. Commerce Secretary Howard Lutnick had said that a deal had been prepared months ago, but couldn’t be implemented as he claimed PM Modi didn’t make a telephone call to Mr. Trump to clinch it. The MEA had denied the claim.
2. Will 18% resolve India’s disadvantage in the region?
The reciprocal tariff rate imposed by the U.S. in April 2025 of 25% had been a double blow for Indian exporters because it was higher than its regional rivals, Bangladesh and Vietnam (20%), Pakistan (19%) and China (34%, but much of it was delayed until November 2026). The new reciprocal tariff rate of 18% is thus a welcome step, in particular for apparel manufacturers, and gems and jewellery exporters who had been the worst hit by the tariffs. However, it must be remembered that all of India’s neighbours and some of its Asian rivals also receive a special GSP (Generalised System of Preferences) concession of about 5%, which the U.S. withdrew from India in June 2019, during Mr. Trump’s first tenure, and hence Indian exporters had hoped for a reciprocal tariff rate of about 15%.
3. What happens to India’s imports of Russian Oil?
In his post on Monday (February 2, 2026), Mr. Trump said that PM Modi had “agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela”, adding that this would help end the war in Ukraine. The MEA has not responded to requests for comment on this issue. While the government insists that it has no part to play in these commercial decisions, Mr. Trump’s statement that PM Modi had agreed to cutting Russian oil contradicts it.
In a statement on August 6, 2026, the MEA spokesperson had issued a statement slamming U.S. penalty tariffs of 25% for India’s purchase of Russian oil, calling them “unfair, unjustified and unreasonable”, and asserting that oil imports are based on “market factors” with the objective of ensuring energy security for Indians. India’s purchase of Russian oil, that reached a peak in 2024, continued unabated for the next few months. However, in October, Indian refiners began to cut Russian Ural oil orders, about 38% from the previous year in October, and then in December.
“India’s Russian crude imports recorded a sharp 29% month-on-month reduction to the lowest volumes since the implementation of the price cap policy,” European Centre for Research on Energy and Clean Air (CREA) said. On January 6, 2026, Reliance Industries, one of India’s biggest refiners, said in a statement that it would not receive any oil from Russia in January 2026, and had not received any Russian oil in the last three weeks.
4. Is India bowing to U.S. sanctions?
In 2019, India had similarly “zeroed out” its imports of Iranian and Venezuelan oil, after Mr. Trump had threatened sanctions, and sent U.S. Ambassador to the UN Nikki Haley to Delhi to publicly press the point. After the kidnapping of Venezuelan President Maduro by U.S. forces in January this year, Mr. Trump has indicated the U.S. would “allow” countries to import Venezuelan oil. This may be a relief for India, but raises questions over its autonomy on important strategic decisions like energy procurement.
The U.S. has also threatened to impose 25% tariffs on countries “doing business” with Iran, which includes India, and has decided to withdraw its sanctions waiver on Indian investment in Iran’s Chabahar port. Government sources indicated India is prepared to give up its “minimal levels” of trade with Iran rather than face more tariffs. The Union budget presented on February 1 also shows no allocation for Chabahar in the upcoming year, indicating the Modi government is preparing to back away from the 23-year project, at least until the threats of U.S. sanctions ease.
5. How much has India committed to investing in the U.S.?
In his post, Mr. Trump said that Mr. Modi also “committed to “BUY AMERICAN,” at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products”. Mr. Trump had similarly claimed that the European Union, Japan and several others had committed to investments of over $500 billion as well, after announcing trade deals with them. The MEA declined to comment on whether such a commitment has been given, but the size of the figure indicates this is meant to be done over several years, and with multiple sectors involved. Remember, India-U.S. bilateral trade in goods stands at about U.S. $131 billion, and India’s investment in the U.S. has hovered around U.S. $40 billion.
