From Tariff War to Truce: How the US-India Deal Ended a Year of Trade

The US-India trade relations, which have long been celebrated as a strategic alliance between the two biggest democracies in the world, experienced one of the most complicated phases in 2025.

What started as a conflict over tariffs has now turned into an economic standoff in full blast, as geopolitical conflict against Russia and its war in Ukraine, and India's still acquiring Russian crude at a discount, fuel their conflict. By mid 2025, the US had levied high duties on Indian exports, hitting up to 50 percent in certain situations -the highest tariffs imposed on any of its major trading partners.

The origins of the conflict date back to the beginning of 2025. President Donald Trump has launched his global campaign of tariffs to liberate the world with a 26 percent reciprocal tariff on various Indian imports to reflect what he has viewed as the imbalances. It was succeeded by a short 90-day halt, but the negotiations collapsed due to access to agriculture, data regulation, and intellectual property. On July 31, the US declared a 25 percent duty on all Indian merchandise and made plain threats of retaliation should India continue purchasing Russian oil, a step Washington considered to be aiding the aggression of Moscow indirectly.

This was at its climax in August 2025. Trump added a punitive 25% duty on Indian imports directly related to the purchasing of Russian oil, on August 6-7, which further increased the effective rate of 50 percent on most products. This came as a great blow to Indian exporters, especially in the field of textiles, gems and jewelry, pharmaceuticals, shrimp, footwear, and chemicals- areas where the US was an important market.

Exporters suffered margin squeezes, failed to compete with their competitors in the market, such as Vietnam and Bangladesh, and experienced sluggish investments in the Make in India projects. The tariffs also put a strain on wider relationships, as issues of visa problem and defense cooperation sometimes sprout into the rhetoric.

The talks dragged on into the end of 2025 and early 2026. Several meetings between Commerce Minister Piyush Goyal and the US officials, such as Commerce Secretary Howard Lutnick and trade representatives, did not produce much initial results. India demanded the safeguarding of certain vulnerable areas, such as agriculture and dairy, whereas the US demanded market openness and the replacement of Russian energy.

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There were no signs of a diplomatic shutdown, yet the signals were contradictory. On the one hand, Trump was constantly threatening to increase the number of hikes, and on the other hand, Indian leaders were preaching about the national interests.

The surprise came in a very unexpected manner on February 2, 2026. After a phone call between Trump and Prime Minister Narendra Modi, Trump stated on Truth Social that they would have a trade deal because of their friendship and respect for Prime Minister Modi. He said: “It was an Honor to address Prime Minister Modi, of India, this morning. He is among my best friends, and he is a Powerful and Respected Leader of his Country. Exchange - We agreed to an Exchange of Commerce between the United States and India whereby United States will impose a Reciprorocal Tariff of less than 18 per cent, instead of 25 as per his request, and out of friendship and respect to Prime Minister Modi, we immediately agreed to the Deal which was to become effective immediately.”

Trump also purported that India had promised to cease purchasing Russian Oil, and to purchase far greater quantities of the United States and, possibly, Venezuela, and pledged to purchase American goods on a larger scale, including over 500 billion in US energy, technology, agricultural goods, and coal, as well as moving to zero tariffs and non-tariff barriers to American products.

Modi confirmed the deal with his X platform, making the following post: "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 world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation. President Trump’s leadership is vital for global peace, stability, and prosperity. India fully supports his efforts for peace. I look forward to working closely with him to take our partnership to unprecedented heights.”

Minister of Commerce and Industry Piyush Goyal heralded it as a turning point in history and said the deal will provide unprecedented opportunities to farmers, MSMEs, entrepreneurs, and skilled workers, and will allow India to open access to US technology and gain momentum in its Viksit Bharat 2047.

Markets responded quickly. On February 3, Sensex and Nifty Indian benchmark indices, jumped almost 3 percent, with textiles (as much as 20 percent in some stocks such as K P R Mill and Vardhman Textiles), gems and jewelry, seafood, and IT companies such as Infosys and Wipro responding sharply.

The announcement of the deal relieved the situation and restored the bilateral relations. The 18 percent rate was a relief to exporters who found India to be more competitive than its Asian counterparts. The industry associations, such asthe  Federation of Indian Export Organisations, lauded the step and said it would improve industries that were most severely affected in 2025.

However, as it is with most Trump announcements, the details are unclear. Indian declarations did not confirm an absolute freeze of Russian oil imports- even Russia itself refuted such an undertaking by New Delhi- and zero-tariff on US imports.

Analysts observe that Russian imports have decreased slightly because of sanctions and substitutes, but it is unlikely that this will come to a halt because of energy security requirements. There are still questions about schedules, industry-specific concessions, and whether this will be a mere first tranche on a full free trade agreement or a conditional reset.

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Nevertheless, the truce is a pragmatic turn-taking. In a complicated geopolitical environment, neither party decided to follow a long-lasting conflict but an economic orientation. The tariff cut relieves strain on the production goals of India and is an indication that personal diplomacy between two leaders who long-term addressed each other as friends can overcome cancerous divisions.

The question of whether this will be developed into a more involved relationship or undergo novel tests is yet to be addressed, but as of now intense trade war has been replaced by prudent hopefulness.