U.S.-India Trade Deal: Tariffs Slashed as Energy Ties Shift

February 2, 2026 — In a major diplomatic breakthrough, President Donald Trump and Prime Minister Narendra Modi announced a historic trade agreement today that immediately reduces U.S. reciprocal tariffs on Indian goods from 25% to 18%.

The deal effectively de-escalates a year of rising trade tensions and is coupled with a significant shift in India’s energy policy and a multi-billion-dollar commitment to "Buy American."

Key Provisions of the Deal

Feature

New Terms

Previous Status

U.S. Reciprocal Tariffs

18%

25%

Effective U.S. Rate

18%

~50% (inclusive of punitive duties)

Indian Trade Barriers

Path to Zero

Various high-tariff sectors

Russian Oil Imports

Halted

India was Russia's top buyer

U.S. Purchase Pledge

$500 Billion

N/A

1. The Tariff De-escalation

The core of the announcement is the immediate lowering of the U.S. reciprocal tariff rate. For much of late 2025, Indian exports had faced an effective 50% levy, which included a 25% base reciprocal tariff plus an additional 25% punitive duty imposed by the Trump administration due to India's continued purchase of Russian crude oil.

By settling on an 18% rate and scrapping the punitive duties, the U.S. has placed India in a more favorable trade position than regional competitors like Vietnam (19%) and Bangladesh (20%).

2. The "Russian Oil" Factor

The breakthrough was contingent on a major geopolitical concession: India has agreed to stop purchasing Russian oil. President Trump framed this as a decisive move to "end the war in Ukraine" by cutting off one of Moscow's primary revenue streams.

To fill the resulting energy gap, India has committed to:

• Substantially increasing imports of U.S. energy (oil, gas, and coal).

• Potentially sourcing additional crude from Venezuela.

• Investing in long-term U.S. technology and agricultural sectors.

3. "MIGA" and "Buy American"

Prime Minister Modi reaffirmed his commitment to the "Mega Partnership," a concept often referred to as "MAGA plus MIGA" (Make India Great Again). As part of the agreement, India pledged to purchase over $500 billion in U.S. goods, including:

• Energy & Coal: To power India's growing industrial base.

• Technology & Infrastructure: Deepening ties in the semiconductor and cloud computing sectors.

• Agriculture: Providing American farmers with greater access to the Indian market.

Economic Impact

The markets responded instantly to the news. The GIFT Nifty saw a surge of nearly 800 points, and WTI crude oil futures dropped by more than 4.5% as global energy flows prepared for a massive redirection.

In India, sectors such as textiles, engineering goods, and footwear—which had been absorbing the high costs of the 50% tariffs—are expected to see an immediate boost in export competitiveness.

Conclusion

While trade experts suggest that "loose ends" remain regarding specific agricultural and dairy sector protections in India, the agreement marks the most significant stabilization of the U.S.-India relationship in years. President Trump characterized the deal as a testament to his "great friendship" with Prime Minister Modi, emphasizing that both leaders are focused on "getting things done."