Trump Cuts India Tariffs to 18% as Modi Agrees to Russian Oil Halt

The Trump administration has recast trade leverage into energy diplomacy, cutting U.S. tariffs on Indian goods to 18% from 50% in exchange for New Delhi halting Russian oil purchases and committing to large-scale U.S. imports.

Announced Monday after a call between U.S. President Donald Trump and Indian Prime Minister Narendra Modi, the agreement rescinds a punitive 25% duty layered atop a 25% “reciprocal” tariff, according to a White House official cited by Reuters.

Trump framed the move as immediate, saying the United States would now charge “a reduced reciprocal tariff, lowering it from 25% to 18%,” while India would move to reduce its “tariffs and non tariff barriers against the United States, to zero.”

Tariffs for Energy Realignment

The deal ties tariff relief directly to energy and market access. Modi committed India to buying more than $500 billion in U.S. energy, technology, agricultural, coal, and other products like petroleum, defence equipment, aircraft, and other goods from the U.S. under a new trade deal, according to Reuters.

Trump said Modi also agreed to “buy American” at a much higher level and to replace Russian crude with supplies from the United States and potentially Venezuela.

India, the world’s third-largest oil importer, covers around 90% of its energy needs through imports, and cheaper Russian oil had helped cap costs after Moscow’s 2022 invasion of Ukraine.

“Buy American” Zero Barriers

Trump described Modi as one of his greatest friends and, a “powerful and respected leader of his country,” adding that ending India’s Russian oil purchases would help “end the war in Ukraine.” He said New Delhi would also reduce trade barriers against U.S. goods to zero.

Modi welcomed the announcement on X, writing: “Delighted that Made in India products will now have a reduced tariff of 18%,” and thanked Trump “on behalf of the 1.4 billion people of India.”

Market Reaction

Markets reacted quickly. U.S.-listed Indian stocks rallied, with Infosys up 4.3%, Wipro gaining 6.8%, HDFC Bank rising 4.4%, and the iShares MSCI India exchange-traded fund climbing 3%.

The shift also lifted broader U.S. indexes amid positive sentiment around semi-conductors and artificial intelligence.

Until Trump returned to office and lifted U.S. tariff rates into double digits last year, India maintained some of the world’s highest duties, with a simple applied rate of 15.6% and an effective applied tariff of 8.2%, according to World Trade Organization data.

Economist Madhavi Arora of Emkay Global said the new rate brings India “broadly in line with its Asian peers” at 15% to 19%, easing pressure on exports and the rupee after India became the worst-performing emerging market in 2025 amid record foreign outflows.

Markets Rally, Details Lag

Despite the headline terms, the White House had not issued a presidential proclamation or Federal Register notice by late Monday, leaving timelines unclear for tariff cuts, Russian oil deadlines, and barrier reductions. Previous U.S. deals with Japan and South Korea included commitments to invest hundreds of billions of dollars in American industries, but no comparable investment figures were announced for India.

U.S. business groups offered mixed reactions. The U.S. Chamber of Commerce called the move progress toward a comprehensive agreement, while a coalition of more than 800 small businesses, “We Pay the Tariffs”, warned the 18% rate still represents a sharp rise from the 2% to 3% tariffs in place in 2024 and could increase further if India does not fully exit Russian oil.

Energy Flow Trends

Energy flows are already shifting. India’s Russian crude imports stood at about 1.2 million barrels per day in January and are projected to fall to roughly 1 million bpd in February and 800,000 bpd in March, according to Reuters. Trump has also floated Venezuelan oil as a replacement option following a U.S. operation against President Nicolas Maduro in early January.

The agreement lands days after India signed a trade pact with the European Union that would eliminate or reduce tariffs on 96.6% of goods by value, excluding items such as soybeans, beef, sugar, rice, and dairy.

Analysts cautioned that Washington’s announcement resembles a tariff de-escalation more than a fully formed trade agreement, but acknowledged it marks a significant reset after months of tension, including Trump’s August decision to double duties on Indian imports to 50%.