In a step that has rocked global markets with optimism, President Donald Trump said on Monday that the United States and India have agreed to a big trade pact. The centerpiece of the deal is a radical reduction of the “reciprocal” tariff on Indian products from 25% down to 18%, effective immediately. The statement was made through the President’s Truth Social account after a high-stakes telephonic call with Indian Prime Minister Narendra Modi.
“Out of Friendship and Respect”
President Trump described the deal as a personal gesture he made towards his “great friend” PM Modi. “Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal,” Trump posted.
The move is viewed as a strategic de-escalation of trade tensions that had reached their climax earlier in the administration. Most importantly, the deal will remove the punitive 25% extra duty previously placed on India as it bought Russian oil, bringing the overall effective tariff rate down to a common 18%.
"It was an Honor to speak with Prime Minister Modi, of India, this morning... He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela. This will help END THE WAR in Ukraine" - President Donald J. Trump 🇺🇸 pic.twitter.com/RD7PZ8S16z
— The White House (@WhiteHouse) February 2, 2026
The $500 Billion Commitment
In exchange for the tariff relief, the Trump administration secured huge "Buy American" commitments from New Delhi. India has promised, according to the President:
- Buy more than $500 billion in U.S. energy, tech, coal, and agricultural products.
- Move toward Zero Tariffs and eliminate non-tariff barriers for American export products.
- Shift Energy Sourcing: According to reports, Prime Minister Modi has agreed to discontinue imports of Russian oil and to increase U.S. and possibly Venezuelan imports.
Reaction from New Delhi
The Prime Minister also thanked on social media and highlighted the push for the “Make in India” strategy. “Delighted that Made in India products will now have a reduced tariff of 18%,” Modi added. “Big thanks to President Trump on behalf of the 1.4 billion people of India. Collaboration between the world’s largest democracies opens up an enormous array of opportunities.”
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.
— Narendra Modi (@narendramodi) February 2, 2026
When two large economies and the…
Market Impact
Such news triggered a short-term rally into the Gift Nifty, which jumped more than 800 points and is expected to give other sectors like textiles, leather, and technology a big competitive boost. Analysts have put forward the following conclusion of the deal. It follows India’s recent free trade pact with the EU, with New Delhi taking a leading role in shifting markets and markets around the world at home on this issue.
Though the legal wording of the new deal is still coming to a close, the “handshake” arrangement represents the entry of a new era of economic integration and alignment between Washington and New Delhi that could counter regional dependencies and help them realize one another’s interests.
