What Trump’s Tariff Cut Means for India’s Economy and Global Trade Position

The decision by US President Donald Trump to sharply reduce reciprocal tariffs on Indian goods, from 50 per cent to 18 per cent, has certainly brought relief to India’s economy, even as uncertainty persists over the actual scope and terms of the understanding between the two countries.

India had been facing the steepest import duties imposed by the US after Washington doubled tariffs on Indian products from 25 per cent to 50 per cent last August, citing New Delhi’s continued purchase of discounted Russian crude oil amid the Ukraine conflict. It had strained India–US ties and hurt Indian exports across labour-intensive sectors such as textiles, seafood and gems and jewellery.

Following a phone conversation with Prime Minister Narendra Modi on Monday, President Trump claimed that India had agreed to stop buying Russian oil and would instead increase purchases from the US and possibly Venezuela. The Government of India has not formally responded to these claims. However, PM Modi welcomed the tariff rollback, thanking Trump “on behalf of 1.4 billion Indians” and expressing hope that bilateral ties would reach “unprecedented heights”.

Wonderful to speak with my dear friend President Trump today. 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.

When two large economies and the…

— Narendra Modi (@narendramodi) February 2, 2026

The easing of tariffs comes after months of friction triggered by Trump’s trade actions, which disrupted a relationship that both sides had carefully built over the years. The impact was visible in falling exports to the US and rising pressure on India’s currency and financial markets. The uncertainty also contributed to a widening trade deficit and an outflow of foreign investments last year.

With the new 18 per cent tariff rate, India is now broadly aligned with other Asian exporters such as Vietnam, Thailand and Bangladesh, which face duties ranging between 19 and 40 per cent. According to economists, this could restore India’s competitiveness in global supply chains.

“This significantly strengthens India’s position as an alternative manufacturing base to China,” said Shilan Shah of Capital Economics, noting that India continues to offer advantages such as low labour costs, political stability and a large domestic market.

Indian industry groups were quick to welcome the announcement. Textile exporters, in particular, said the move would help them regain ground in the US, their largest overseas market. Market participants also saw the decision as a boost to investor sentiment. “It removes a major overhang on the rupee, equities and interest rates, though the details will matter,” said fund manager Nilesh Shah.

At the same time, trade experts have urged caution. Analysts pointed out that Trump’s announcement leaves key questions unanswered, including which products are covered, how quickly the changes will be implemented, and whether India has made commitments on tariffs and non-tariff barriers in sensitive areas such as agriculture.

Ajay Srivastava of the Global Trade and Research Initiative said the development should be seen as a political signal rather than a completed agreement. “Until there is a jointly negotiated text and clarity on enforceability, this is not a finished trade deal,” he said.

The agriculture sector remains a particular point of sensitivity. While US officials have suggested that American farm exports will gain greater access to India’s market, New Delhi has refrained from commenting. Agriculture employs nearly half of India’s population, making any concessions politically delicate.

The tariff relief also follows India’s recent push to diversify its trade partnerships. Last week, India and the European Union announced a sweeping free trade agreement covering a large share of goods, marking India’s ninth such pact in four years.

From a strategic perspective, analysts say the thaw with Washington could also have wider geopolitical implications. Over the past year, India had drawn closer to China and Russia amid tensions with the US. The latest move, however, may signal a renewed tilt towards Washington, provided the rapprochement holds.

For now, while the tariff rollback has lifted sentiment, its safe to say that the real test will come when the fine print of the India–US trade arrangement is finally put on paper.

Also Read: Assam CM Praises PM Modi, Calls India–US Trade Deal a Big Boost for ‘Made in India’