Trump-Modi trade deal; U.S. slashes tariffs on India to 18%

In a social media announcement on 2 February 2026, U.S. President Donald Trump declared a trade deal with India. According to the announcement, following a high-stakes call with PM Narenfra Modi, the U.S. has slashed its reciprocal tariffs on Indian goods from 25%, which had effectively reached 50% for oil-related friction, down to 18%.

PM Modi also took to X within minutes of the announcement to confirm the breakthrough, expressing his delight and thanking President Trump on behalf of 1.4 billion people. 

He described his conversation with Trump as "wonderful," framing the deal not just as a trade agreement but as a testament to the power of the world’s two largest democracies working in tandem. 

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

What is a 'Reciprocal tariff'?

To understand the magnitude of this announcement, one needs to understand the 'Reciprocal tariff' policy, a cornerstone of the Trump administration's "Fair Trade" doctrine.

A reciprocal tariff can be seen as an 'eye-for-an-eye' trade tax. For example, if a country decides to charge a 20% duty on American cars, the U.S. responds by charging a 20% duty on that particular country's exports to the U.S.

In late 2025, the U.S. had imposed a baseline 25% reciprocal tariff on Indian goods. This was later doubled to an effective 50% as a penalty for India’s continued purchase of Russian oil. Now, by lowering this to 18%, the U.S. has effectively removed the "war penalty" and brought India into a preferred trading bracket.

The four pillars of the agreement

According to President Trump's announcement, the 18% tariff comes is part of a massive agreement involving four critical commitments.

First, Indian has reportedly agreed to stop buying Russian oil. This is a massive strategic shift for the country, which has relied on discounted Russian Urals since 2022.

Secondly, to fill the Russian void, India will pivot to U.S. and potentially Venezuelan oil, enuring the U.S. becomes a primary energy gurantor for India.

Third, the post also claimed that PM Modi has committed to "Buy American" at over USD 500 billion in U.S. energy, technology, agricultural products and coal.

Finally, in exchange for the U.S. drop to 18%, India has reportedly committed to moving toward zero tariffs and removing non-tariff barriers for American products.

Potential outcomes

For the electronic manufacturing sector, the reduction to 18% is a victory. And, with India aiming to become a global hub for smartphone and semiconductor assembly, lowered U.S. duties can make "Make in India" components more competitive against Chinese exports.

While the White House is celebrating, the response from the Indian Ministry of External Affairs (MEA) has been more measured. While External Affairs Minister S. Jaishankar welcomed the tariff reduction as a boost for jobs and "Make in India," official sources have remained silent on the specific claim regarding a total halt of Russian oil. If India truly halts Russian imports, domestic refiners like Reliance and IOC will face a massive logistical challenge in re-tooling for U.S. light sweet crude or Venezuelan heavy crude. 

Also, while this deal focuses on 'goods'. the improved diplomatic climate can bring in relief for the Indian It services industry. An earlier trade war environment lead to H-1B visa restrictions; hence this trade peace suggests a more stable environment for Indian tech talent in the U.S.

However, for the Indian industry, the "Zero Tariff" promise is the real wildcard. If India opens its markets fully to American agricultural and tech giants, domestic players must innovate faster than ever. The walls are coming down, and for the digital economy, the race has officially begun.