U.S.-India Trade Breakthrough Sparks Optimism, Signals Shifting Geopolitical Alignments

Updated by Faith Barbara N Ruhinda at 1632 EAT on Tuesday 3 February 2026

U.S. President Donald Trump’s decision to reduce reciprocal tariffs on Indian goods from 50% to 18% has been welcomed with cautious optimism in India, Asia’s third-largest economy, even as the specifics of the agreement remain vague.

India had been facing the highest tariffs in the world after Trump raised import duties on Indian goods from 25% to 50% in August last year. The move came in response to India’s continued purchase of discounted Russian oil, which, Trump claimed, was contributing to Moscow’s war effort in Ukraine.

In a phone call with Indian Prime Minister Narendra Modi on Monday, Trump announced that Modi had “agreed to stop buying Russian oil, and instead purchase more from the U.S., and potentially Venezuela.”

India has not officially commented on these claims, but Modi expressed gratitude, thanking Trump “on behalf of the 1.4 billion people of India for this wonderful announcement” and expressing hope to elevate the partnership with the United States to “unprecedented heights.”
The agreement marks a significant turn in the wake of Trump’s earlier trade war, which had strained U.S.-India relations.

Under the tariffs, exports from India to the U.S. plummeted in crucial sectors such as textiles, seafood, and jewelry. The dispute also prompted India to accelerate other trade negotiations, diversifying its export markets.

Last week, India and the European Union announced what has been dubbed “the mother of all trade deals,” eliminating tariffs on 80-90% of goods. This deal, part of India’s broader strategy, marks its ninth free trade agreement in four years, while progress on the U.S.-India trade deal had appeared stalled.

The long-awaited announcement by President Trump was met with widespread approval from Indian industry.

“While the devil is in the details, this move lifts a major concern hanging over the rupee, equity markets, and interest rates,” said Nilesh Shah, a prominent fund manager. “Let’s hope this turns out to be a win-win deal for both countries.”

Uncertainty surrounding tariffs was one of the key factors contributing to India’s widening trade deficit, a falling rupee, and a decline in foreign investment last year.

The reduction in tariffs to 18% now brings India in line with other major Asian economies, such as Vietnam, Thailand, and Bangladesh, which face duties ranging from 19% to 40% on U.S. exports.

“This move significantly enhances India’s attractiveness as an alternative to China in the reconfiguration of global supply chains,” said Shilan Shah of Capital Economics in a recent note. “India offers several advantages that other manufacturing hubs cannot, including low labor costs, political stability, and a large domestic market that multinational companies can tap into as a hedge against future tariffs.”

Textile exporters in India also welcomed the tariff reduction, with the Confederation of Indian Textile Industry stating that the deal will enable them to “compete effectively in the U.S. market, the largest destination for India’s textile and apparel exports.”

While the announcement has been widely welcomed, trade experts caution that many details remain unclear, and Delhi should refrain from celebrating prematurely.

“The Truth Social post by Trump leaves several major questions unanswered,” said Ajay Srivastava of the Delhi-based Global Trade and Research Initiative (GTRI).

“What products are covered? What are the timelines? Has India truly agreed to eliminate tariffs and non-tariff barriers, especially in sensitive sectors like agriculture and regulated imports?”
U.S. Secretary of Agriculture Brooke Rollins stated that the deal would allow the U.S. to “export more American farm products to India’s massive market, boosting prices and generating income for rural America.” The deal aims to address the U.S.’s $1.3 billion agricultural trade deficit with India.

However, Delhi has yet to comment on this sensitive issue. Greater access to Indian agricultural markets had been one of the most contentious points in negotiations, as nearly 50% of India’s population depends on agriculture for their livelihoods.

GTRI also expressed skepticism regarding Trump’s claim that Prime Minister Modi had committed to “Buy American” by purchasing more than $500 billion worth of U.S. goods, particularly given that India’s current annual imports from the U.S. total less than $50 billion.

“Until a joint statement is issued, with clear negotiated terms and enforceability, this should be treated as a political signal — not a finalized trade deal,” Srivastava concluded. “Caution, not celebration, is warranted.”

The breakthrough in U.S.-India trade talks, following a long period of deadlock, is being viewed as a positive development, though much remains to be negotiated.
“Both governments have made it clear that this is just the beginning, with further phases and discussions expected in the coming months,” said the US-India Strategic Partnership Forum in a statement, describing the agreement as an important first step.

From a geopolitical perspective, analysts also see the announcement as significant.
Over the past year, Beijing, Delhi, and Moscow have strengthened their ties in the wake of Trump’s sweeping tariffs.

In August, China and India declared their intention to be “partners, not rivals.”
In September, the leaders of India, China, and Russia showcased rare solidarity at the Shanghai Cooperation Organisation Summit in Tianjin, sending a clear message of unity to the U.S. administration. Later, in December, Modi and Putin held another meeting to further solidify their “no limits partnership.”

India’s foreign policy has long balanced these key relationships, but some experts suggest that a thaw in ties with Trump could prompt India to realign more closely with the U.S.
“While many in India would prefer to remain strategically unaligned, a lasting rapprochement with the U.S. could eventually lead India back toward the U.S. bloc,” said Shilan Shah of Capital Economics.

Credit to BBC

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