In early February 2026, the United States (“U.S.”) and India announced a significant development in their bilateral trade relationship: a major reduction in U.S. tariffs on Indian imports from 50% to 18%.

Tola Associates said in a report that this move comes after months of trade tensions and negotiations, as both countries sought to reconcile economic and geopolitical priorities. Back in April 2025, the U.S. introduced a “reciprocal tariff” policy targeting countries with higher duties on U.S. goods, including India with a 25% tariff. Subsequently, in August 2025, an additional 25% tariff was imposed as a penalty on Indian imports, raising total duties on some products to nearly 50%, mainly due to India’s energy trade with Russia¹.

With this trade deal, India has committed to “BUY AMERICAN at a much higher level,” in addition to buying more than $500 billion worth of U.S. energy, including coal, along with technology, agricultural, and other products.

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“They will likewise move forward to reduce their tariffs and non-tariff barriers against the United States to ZERO,” Trump said. In 2025, U.S. goods exports to India totaled $45.62 billion, and the new trade targets aim to triple this value over time. Total bilateral trade between the two countries is estimated to have surpassed $230 billion in 2026, with a formal goal now set to reach $500 billion by 2030.

With respect to the proposed deal, several factors had constrained India’s willingness to finalize it earlier. Foremost among these is India’s continued access to discounted Russian crude oil, which has been significantly cheaper than supplies from alternative markets.

Following Western sanctions on Russia after its invasion of Ukraine in February 2022, India began importing discounted Russian crude, rapidly increasing Russia’s share of India’s oil imports from 1.7% in FY20 to 35.1% in FY25, making it the country’s largest supplier. In volume terms, India imported 88 MMT of Russian crude out of a total 245 MMT of oil in FY25², buying a large amount of Russian crude oil, roughly 1.5 million barrels a day. According to trade data provider Kpler, Russian oil accounts for more than one-third of India’s total crude imports, reports CNN³.

Beyond cost savings, Indian refiners processed this crude into petroleum products for export, with exports valued at approximately $44.4 billion in FY25⁴. Estimates suggest that replacing Russian oil with costlier imports primarily from the United States and other suppliers could increase India’s oil import bill by up to USD 12 billion in the coming financial years⁵.

Secondly, India has sought to shield its agricultural sector from a surge in imported agricultural products. Agriculture remains a major pillar of the Indian economy, accounting for about 18% of GDP and employing roughly 45–46% of the workforce, with a large proportion of small and marginal farmers dependent on farm incomes. High agricultural imports, especially if tariff protections are reduced for the U.S., could depress domestic prices and undercut local producers, threatening the livelihoods of millions of farmers and destabilizing rural markets.

The aftermath of the deal is that the Indian financial markets experienced a substantial rally, with the benchmark NIFTY index rising nearly 3% and the Indian rupee strengthening over 1% against the U.S. dollar⁶. Analysts linked this market optimism to expectations of stronger export growth and renewed investor confidence in India’s trade prospects.

Compared to its trading rivals, India now has lower tariffs, with Bangladesh and Vietnam at 20%, and Malaysia, Cambodia, Thailand, and Pakistan at 19%.

The U.S.–India tariff deal is likely to adversely affect Pakistan, particularly due to heightened competition in the U.S. market. Pakistan competes directly with India in textiles, especially in the socks manufacturing sector, which accounts for 19% of Pakistan’s total exports to the U.S., of which textiles represent 94%.

Lower U.S. tariffs on Indian goods enhance India’s price advantage, increasing the risk of trade diversion away from Pakistan, with limited scope for policy countermeasures due to fiscal and IMF-related constraints.

For China, the impact is mainly strategic and medium term. Reduced tariffs on Indian exports strengthen India’s role as an alternative manufacturing base under the China-plus-one strategy, gradually reducing China’s competitiveness in the U.S. market. While immediate effects are limited, the deal reinforces U.S.–India economic alignment and may accelerate supply chain shifts toward India over time.