U.S. and India Strike Trade Truce: Tariff Rollback Tied to Pledge on Russian Oil
(Bloomberg) -- The United States and India have reached a pivotal trade agreement, with President Donald Trump announcing a rollback of punitive tariffs in exchange for New Delhi's commitment to cease buying Russian oil. The deal, forged during a phone call between Trump and Prime Minister Narendra Modi, marks a de-escalation after months of strained relations and positions India more firmly within the U.S. economic orbit.
The U.S. will reduce its levy on Indian goods to 18% from 25%, and remove an additional 25% duty imposed specifically in retaliation for India's crude purchases from Russia, according to officials briefed on the matter. In return, Trump stated on social media that India would work to eliminate its tariffs and non-tariff barriers against American exports and purchase over $500 billion worth of U.S. energy, technology, agricultural, and other products.
Prime Minister Modi confirmed the pact, posting that "Made in India products will now have a reduced tariff of 18%," though he omitted specifics on the oil agreement or sensitive agricultural imports.
This agreement directly targets a trade relationship that had become a flashpoint. India emerged as a major buyer of discounted Russian crude following the 2022 invasion of Ukraine, a move that drew Washington's ire as it sought to constrict Moscow's energy revenue. While previous U.S. sanctions had slowed these shipments, this deal aims to halt them entirely.
For India, the tariff reduction delivers substantial relief. The U.S. is its largest export destination, and the previous duties had severely impacted labor-intensive sectors like textiles and leather. "The 18% tariff brings the rate in line with India's regional peers and should generate a positive differential," noted Garima Kapoor, an economist at Elara Securities.
The economic implications could be profound. Shilan Shah of Capital Economics suggests the change could boost India's GDP growth by 0.2 to 0.3 percentage points this year. "There could be geopolitical ramifications too," Shah added. "If this rapprochement proves durable, India would likely gravitate back into the U.S. bloc." Markets reacted swiftly, with Indian equity futures and the rupee posting strong gains.
However, the deal's durability faces tests. Critical details remain unresolved, including the precise timeline for Indian refiners to wind down Russian imports and the contentious issue of agricultural market access, a political minefield for Modi. U.S. Trade Representative Jamieson Greer had noted just days ago that India "still has a ways to go" on curbing Russian oil.
In a related move potentially aimed at diversifying supplies, Trump indicated Modi had agreed to consider purchasing more oil from Venezuela. However, such volumes are expected to be marginal compared to the erstwhile Russian flows.
Reader Reactions:
"Finally, some pragmatic diplomacy. This is a win for American energy producers and a strategic blow against Russian war funding. Modi is making the smart choice by aligning with reliable partners." — David Chen, Policy Analyst, Washington D.C.
"This is short-sighted capitulation. We're rewarding India for behavior it should have never engaged in, and the '$500 billion' purchase promise is a typical Trumpian fantasy with zero enforcement mechanism. It weakens our sanctions regime globally." — Anya Petrova, Senior Fellow at the Global Security Institute (Sharper, more emotional critique)
"The tariff reduction solidifies India's position as a compelling alternative to China for manufacturing. The real-time market rally shows investor confidence in a more stable U.S.-India corridor." — Raj Mehta, Managing Director, Mumbai-based investment firm.
"My concern is for our farmers. The brief mention of agricultural imports is worrying. The government must ensure this deal does not flood our markets with subsidized American produce that undermines our livelihoods." — Priya Sharma, Agricultural Cooperative Leader, Punjab.
--With assistance from Chiranjivi Chakraborty, Ravil Shirodkar, Mia Gindis, Malcolm Scott, Nasreen Seria and Clara Ferreira Marques.
(Updates with market reaction and analyst commentary throughout.)
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