India-US Trade Breakthrough: Tariffs Slashed to 18% in Historic Agreement

President Donald Trump announced a landmark trade agreement with India on February 2-3, 2026, reducing U.S. tariffs on Indian goods from 50% to 18%, marking a significant breakthrough in bilateral economic relations. The deal, finalized following conversations between Trump and Prime Minister Narendra Modi, comes into effect immediately and has triggered a strong rally in Indian financial markets.

Under the deal, India has committed to halting its purchases of Russian oil and will significantly increase imports of U.S. energy, coal, technology, agricultural goods, defense equipment, electronics, pharmaceuticals, telecommunications products, and aircraft. Modi confirmed the tariff reduction on social media, expressing gratitude "on behalf of 1.4 billion people of India" for what he termed a "fantastic announcement".

The U.S. had previously imposed the 50% levy on Indian goods, which included a 25% reciprocal tariff and an additional 25% penalty for India's purchase of Russian crude oil. With the new agreement, Washington has removed the extra penalty and lowered the overall rate.​

Indian financial markets responded enthusiastically to the announcement, with the rupee and stocks rallying sharply on Tuesday in what investors described as a relief rally. The agreement lifts a key overhang that had weighed on India's stocks, bonds, and currency. Union Home Minister Amit Shah stated that the deal will boost MSMEs (Micro, Small and Medium Enterprises), enhance global competitiveness among small industries, and increase employment opportunities.

The tariff reduction gives India a significant advantage over regional competitors including China, Pakistan, and Bangladesh in accessing the U.S. market. Trump indicated this represents the initial phase of a more extensive agreement to be negotiated in the future.

Outstanding Questions
Despite the high-profile announcements, several implementation details remain unclear. The agreement lacks specifics on the exact timeline for tariff implementation, the mechanism for reducing trade barriers, and which specific U.S. products India has committed to purchasing. The opposition Congress party has demanded that the government provide full details of the agreement to Parliament and the country.