US-India trade deal may repair commerce but not strategic rupture

Summary

• US and India reached a trade deal lowering tariffs: US reduces tariffs on Indian goods (50% to 18%), while India will reportedly reduce tariffs on US goods to zero from 17%.
• Experts note the deal is transactional, not strategic, and doesn't rebuild trust. There are doubts about India's commitment to stop buying Russian oil.
• The deal may help India against ASEAN competitors, give Delhi more room to manoeuvre in its dealings with Beijing, but might not be able to push Russia to end the war in Ukraine.

HOUSTON – Long in the making and short on details, the newly minted trade deal between the US and India promises commercial relief but no strategic stairway to heal the rupture in bilateral ties.

The deal will see the US lower tariffs from 50 per cent to 18 per cent
on made-in-India items like jewellery and textiles. This could add to India’s competitiveness in some sectors against manufacturing and export powerhouses China and Vietnam, which now face higher tariffs than India.

In return, India will reportedly reduce its tariffs on US goods to zero from an average tariff rate of 17 per cent.

US President Donald Trump announced the deal on Feb 2 through a message on Truth Social where he said an agreement had been reached after a phone call with Indian Prime Minister Narendra Modi.

“Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a trade deal between the United States and India, whereby the United States will charge a reduced reciprocal tariff, lowering it from 25 per cent to 18 per cent,” he said.

“They will likewise move forward to reduce their tariffs and non-tariff barriers against the United States, to zero. The Prime Minister also committed to ‘Buy American’, at a much higher level, in addition to over $500 billion of US energy, technology, agricultural, coal and many other products,” he added.

Mr Trump did not address the additional 25 per cent tariff that he had levied in August 2025
– on top of a 25 per cent “reciprocal” tariff – to punish India for its purchases of Russian oil.

But he wrote that Mr Modi has also agreed to “stop buying Russian oil”, which meant that the total tariff now stood at 18 per cent, a White House official told US media.

Mr Trump’s post was quickly welcomed by Mr Modi, who said on X that it was a “wonderful announcement” and that “when two large economies and the world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation”.

There was no word, though, about India committing to stop purchasing oil from its strategic ally Russia, which supplies much of India’s weaponry.

Nor was it clear from Mr Modi’s tweet that India had agreed to drop tariffs on US goods to zero, especially when it comes to the import of agricultural goods – a politically explosive issue in the country.

There were no commitments or timelines either about the purchase of US$500 billion (S$635 billion) worth of US products, a big leap given that India’s annual budget in its entirety is only US$600 billion.

India gains slight edge over ASEAN competitors

“The announcement is certainly a relief to our Indian partners, who have faced some of the highest tariff rates of any partner,” veteran US trade negotiator Wendy Cutler, senior vice-president at Asia-focused think-tank Asia Society Policy Institute (ASPI), told the media.

“It will help clear the pathway for the US and India to work cooperatively on other pressing matters concerning critical minerals, technology cooperation and supply chain resiliency,” she said.

“Importantly, the US reciprocal tariff for India will be reduced to 18 per cent, giving Indian exporters a slight edge in the US market over its ASEAN competitors who have secured 19-20 per cent tariffs,” Ms Cutler said.

Indeed, the drop in tariff rate positions India well against Vietnam, which has a tariff rate of 20 per cent,
and Indonesia, Malaysia and Thailand (at 19 per cent each).

Goods from Singapore, a US free trade partner, face a much lower baseline tariff of 10 per cent.

Chinese exports to the US face an average rate of about 37 per cent, taking into account fentanyl-related tariffs and anti-dumping duties after several rounds of escalation and moderation in US-China trade talks.
 

But it does seem likely that the US secured deeper and broader tariff cuts than what the European Union achieved in its recently announced free trade pact with India, Ms Cutler noted, interpreting the language of Mr Trump’s Truth Social post.

India and the EU on Jan 27 concluded a landmark free trade agreement (FTA) dubbed the “mother of all deals” after more than two decades of talks. It aims to slash tariffs on nearly all goods traded between them, with both seeking diversification from China and the US.

Strategic partnership has collapsed

Analysts in the US pronounced the US-India deal as lacking strategic depth.

The deal is transactional, not transformational, said Mr Danny Russel, a former senior US State Department official who served in the Obama administration.

“It stabilises the relationship, but it doesn’t rebuild strategic confidence,” said Mr Russel, who is now a Distinguished Fellow at ASPI.

“Trump’s approach has taught India – and many US partners – that today’s Washington is unreliable. The rational response isn’t closer alignment, it is hedging and reducing exposure to US pressure,” he added.

The India-US strategic partnership has collapsed and will not recover, said Dr Aparna Pande, research fellow for South Asia at Washington-based think-tank Hudson Institute.

She pointed to India’s omission from key policy documents released in recent weeks.

The Trump administration’s National Defence Strategy does not reference India at all, while the more encompassing National Security Strategy makes only a passing mention of the nation that was not long ago seen as key to countering China.

“The relationship lacks strategic underpinnings despite ongoing commerce and military-to-military ties,” Dr Pande said, noting that the trust that sustained the partnership for over 35 years had evaporated.

Additionally, she predicted complications arising from scrutiny of the deal by the Indian Parliament and from the bureaucratic insistence on a detailed, written agreement.

“Mr Modi’s public message focused on tariffs, without mentioning the US$500 billion purchase commitment or dropping Russian oil, suggests that the government is balancing domestic political pressure with the need to release formal texts,” she said.

The maths did not add up either, she said. India’s purchases will not be limited to the US; it will buy oil and gas from the United Arab Emirates, engage with Europe, and sign FTAs with multiple countries, creating potential clashes with existing commitments and necessitating escape clauses.

Impact on China and Russia

An intriguing aspect is the impact of the deal on the two nations’ relations with China, which has trade surpluses with both.

“I see Delhi’s aim as reducing pressure amid a decidedly unstable global environment. Reaching a trade deal with Washington probably gives Delhi somewhat more room to manoeuvre in its dealings with Beijing,” Mr Russel said.

Dr Pande said China was in a better position in the US-China economic relationship than India, which had little leverage in its relationship with either the US or China.

It remains to be seen if the trade deal will serve to resurrect the Quad, the informal security alliance between the US, Japan, Australia and India, which challenges China’s ambitions in the Indo-Pacific region. It failed to hold a leader-level meet in 2025 amid US-India tensions.

“The Quad is not dead, but its pulse is weak in the absence of confidence in the US or a shared set of objectives among all four countries,” said Mr Russel.

In another geopolitical dimension, Mr Trump tied the deal to his attempt to broker peace in the Russia-Ukraine war, saying India’s agreement to stop buying Russian oil “will help end the war in Ukraine”.

His Republican ally in Congress, Senator Lindsey Graham, said India had “more than earned” the reduction in tariffs.

“I am hoping that the other big nations that buy Russian will follow India’s direction. (Russian President Vladimir Putin) will only come to the table when the pain is so great.

“We are not there yet, but with India’s actions, we are moving closer,” Senator Graham said in a post on social media.

India is second only to China in buying Russian energy products.