Why the new US-India trade agreement is a big deal

For the India-China-US triangle, the new US-India trade deal, announced with Trumpian flourish on social media on Monday, has potentially significant economic, geopolitical and strategic implications. US President Donald Trump’s post, which came after a phone call with Narendra Modi, said the Indian prime minister had committed to “BUY AMERICAN”, including over US$500 billion of US products. It also said Modi had “agreed to stop buying Russian Oil, and to buy much more from the United States and potentially Venezuela” which would “help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week!” Given how high-level diplomacy is increasingly being unveiled on social media, Modi’s response was swift, coming within the hour on X. “Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement,” he said. “President Trump’s leadership is vital for global peace, stability, and prosperity. India fully supports his efforts for peace.” The move marks a de-escalation in the deeply troubled India-US relationship, lowering trade tensions that had escalated as Trump leveraged tariffs to pressure allies and adversaries alike on issues like energy dependencies and trade imbalances. The tariff cut is welcome news for an India reeling under the harsh increase to 50 per cent imposed in August over what Trump saw as New Delhi’s transgressions in buying Russian oil. For India, the new reduced tariff of 18 per cent is likely to restore buoyancy in its trade with the US and enhance export competitiveness amid stagnant global growth. Indian businesses and stock markets reacted positively, with the rupee expected to rally as trade barriers ease. Comparing the social media posts of both leaders, it is instructive that while Trump said that India had agreed to stop buying Russian oil, there is no such reference in Modi’s post. The devil is in the detail – the fine print of the revised agreement has not yet been released. 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 US interpretation of the agreement reached is that Delhi is committed to halting its imports of Russian oil, replacing them with supplies from the US and potentially Venezuela; eliminating its tariffs and non-tariff barriers on US products; and buying over US$500 billion worth of American goods. This is an ambitious White House objective and may not be realised in its totality – the February 2 announcement should be welcomed cautiously. Sanctions have already reduced India’s imports of Russian oil to 27.4 per cent of the country’s total in December, down from a peak of 40 per cent, clocking about 1.38 million barrels per day, the lowest in two years, with Opec’s share rising to 53.2 per cent. But whether India can stop buying Russian oil completely and switch to other suppliers quickly is a moot point. Importantly, India would not be able to make such a definitive commitment given the depth and pedigree of the Delhi-Moscow relationship, which dates back to the 1950s. Furthermore, it is not realistic for India to buy US$500 billion worth of US products any time soon. In 2024, US exports to India were worth US$41.5 billion while imports were US$87.3 billion; last year, exports increased marginally to over US$42 billion while imports went up to US$95.5 billion. The US deficit in goods trade with India increased from US$45.8 billion to US$53.5 billion. Can these numbers be scaled up in a balanced manner to touch the Trump target? Unlikely, in my view – the tariff reduction to 18 per cent notwithstanding. The geopolitical implications of the February 2 announcement are varied and can be reviewed at three levels: bilateral as in re-orienting US-India relations, triangular as in the implications related to China, and the tertiary relevance to the global strategic framework buffeted by the Trump churn. The announcement comes as both nations view China as a common threat or challenge in different ways. Apropos the Indo-Pacific, it bolsters the Quadrilateral Security Dialogue between the US, India, Japan and Australia by aligning energy policies and diluting India’s strategic partnership with Russia, a traditional arms supplier. But the revised trade agreement also highlights India’s vulnerability to US pressure and signals a shift from Delhi’s multi-alignment foreign policy towards greater dependence on Washington. Whether India’s recent free trade deal with the European Union will provide a cushion is yet to be determined but the Russia factor will test Delhi’s diplomatic acumen. It needs to balance ties with Washington, Brussels and Moscow while engaging with Beijing productively. A strain on India-Russia relations cannot be ruled out and this may prompt Moscow to pivot further towards China or other members of the Brics grouping of emerging economies, potentially fracturing the bloc. In the Indo-Pacific, a closer US-India partnership might deter Chinese aggression but also risks alienating Global South nations who see India as a relatively unaligned power. The February 2 announcement, while economically beneficial for the US and India, will have a distinctive geopolitical ripple effect. It seeks to weaken Russia, strengthen US-India ties and challenge global energy dynamics in favour of the US. The tactics deployed underscore Trump’s preference for impulsive bilateral deals over patiently crafted partnerships. Short-term gains to consolidate US primacy are being prioritised in a unilateral manner but the risks of backlash from affected powers, particularly China, can further roil the geopolitical waters. A fragmented world order beckons.

Why the new US-India trade agreement is a big deal

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The warming of New Delhi’s ties with Washington has implications for Russia, China and the global dynamics of trade and geopolitical power

The warming of New Delhi’s ties with Washington has implications for Russia, China and the global dynamics of trade and geopolitical power