President Donald Trump and Prime Minister Narendra Modi have taken a significant step toward repairing strained US–India relations, announcing a surprise tariff agreement that could ease pressure on India’s economy and revive bilateral trade momentum.
Quick Facts
- New US tariff on Indian goods: 18% (down from 25%)
- Punitive duty linked to Russian oil: Scrapped
- Claimed US exports to India: $500 billion over five years
- Market reaction: Rupee hits 3-year high; stocks surge
- Sectors most impacted: Textiles, footwear, leather, jewelry
- Estimated GDP boost: 0.2–0.3 percentage points
Under the new arrangement, the US will reduce tariffs on Indian goods to 18% from 25%, placing India at a more favorable level compared to several Asian peers. Crucially, Washington has also withdrawn an additional 25% punitive duty that had been linked to India’s purchases of Russian oil.
Trump claimed that India has committed to buying $500 billion worth of US goods, lowering tariffs to zero, and stopping crude oil imports from Russia—longstanding demands of the US president. However, New Delhi has yet to formally confirm several of these elements, suggesting that negotiations may still be evolving.
Despite the lack of clarity, the announcement triggered a strong market reaction. The Indian rupee recorded its largest single-day gain in over three years, while domestic equities surged to their highest levels since 2021, reflecting investor optimism.
“It is great news for the US-India relationship,” Kenneth Juster, the former US Ambassador to India, said in an interview Tuesday with Bloomberg TV. “This is the first phase of the agreement and if they continue to work on it, we can see the rate drop further.”
Relief After Months of Strain
The rollback follows months of tense negotiations that left India among the few major economies without a trade arrangement with Washington. The earlier 50% tariff rate, introduced in August, had severely impacted labor-intensive sectors such as textiles, footwear, leather, and jewelry, while also denting India’s appeal as a manufacturing hub.
Currency pressures reflected those concerns. The rupee was Asia’s worst-performing currency against the dollar last month amid fears that a trade breakthrough with the US was slipping out of reach.
An Indian government official said the proposed $500 billion import commitment would span five years, covering both existing contracts and new areas like energy and data centers. On the question of Russian oil, the official noted that while India favors energy diversification, purchasing decisions are ultimately made by companies—not the government.
Key Questions Remain
Even as markets welcomed the deal, businesses and analysts flagged unanswered questions. India currently imports less than $50 billion annually from the US, raising doubts about how realistic the $500 billion target may be.
The announcement so far “leaves major questions unanswered — what products are covered, what the timelines are, and whether India has really agreed to zero tariffs and zero non-tariff barriers, especially in sensitive areas like agriculture and regulated imports,” said Ajay Srivastava, founder of New Delhi-based think tank Global Trade Research Initiative.
Exporters and Investors See Opportunity
Despite the uncertainty, exporters see immediate relief. The US remains India’s largest export destination, accounting for nearly 20% of outbound shipments. A lower tariff rate could restore competitiveness for sectors that had been hit hardest.
“The trade agreement details remain cloudy, but topline, if both sides reduce tariffs as meaningfully as indicated on social media, this could unlock real commercial opportunities,” said Rick Rossow, a senior adviser and chair on India and Emerging Asia Economics at the Center for Strategic and International Studies.
At 18%, India now enjoys a tariff rate lower than Vietnam (20%) and much of Southeast Asia (19%), though still above Japan and South Korea (15%). Economists at Capital Economics estimate the agreement could add 0.2–0.3 percentage points to India’s GDP growth this year. A senior Indian official said growth could reach 7.4% in the coming fiscal year, exceeding earlier forecasts.
Broader Strategic Impact
Beyond trade, the deal is expected to strengthen cooperation in defense, technology, and geopolitics. Juster noted that the agreement could inject “new impetus” into the Quad alliance involving the US, India, Japan, and Australia.
“The China+1 process of luring exporters to India was getting a bit disrupted due to these tariff uncertainties,” V. Anantha Nageswaran, India’s chief economic adviser, said in an interview on Bloomberg TV. “Now, that would be once again be back in contention.”
Sensitive Sectors Still Protected
Agriculture and dairy remained sticking points. India maintains strict protections in these areas, including limits on genetically modified crops. Commerce Minister Piyush Goyal said sensitive sectors were safeguarded, while US officials suggested American farm exports could still gain better access. No formal details have been released.
The agreement comes shortly after India finalized a landmark trade pact with the European Union, marking its fifth major deal since May.
“The key tail risk of India’s geopolitical isolation about which investors were concerned has now been adequately addressed by the back-to-back deals with EU and US,” said Citigroup economists Samiran Chakraborty and Baqar Zaidi.
Disclaimer
This article is based on publicly available information, official statements, and media interviews. Several aspects of the US–India tariff agreement remain unconfirmed or subject to change. Storify News does not independently verify claims made by political leaders and advises readers to follow official government announcements for final details.
