India and the US finally agreed to a trade deal that has been months in the making, as US President Donald Trump on Monday said that the US “effective immediately” has lowered tariffs on India to 18% from 50%. This comes after India addressed several US demands in the Budget and also began aggressively signing trade deals with other countries, including the UK and the EU.
Trump said that India has agreed to stop buying Russian oil and buy much more from the US and potentially Venezuela, and has agreed to purchase $500 billion worth of US energy, agriculture, coal and other products under the trade deal.
This comes after a significant resetting of trade ties. India had begun stepping up crude oil imports, now nearly comprising 10% of its total oil imports. New Delhi had also signed a liquefied petroleum gas (LPG) deal where Indian public sector refiners have inked a one-year deal for American LPG imports and had passed the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Bill, 2025, allowing private players to enter the operations side of the tightly-governed nuclear power sector – fulfilling key US demands.
PM’s Washington visit
After months of targeting India over its high tariffs, even before assuming office, US President Trump and PM Modi in February announced the start of the negotiations for a bilateral trade agreement by year end. India was among the first countries to start negotiations with the US, but the trade deal comes after much of the world, including China, has reached an agreement with the US.
The first sign of India addressing Trump’s concerns came in even before Modi’s visit. As Trump consistently called India ‘tariff king’ talking about American companies such as Harley Davidson failing in India due to high tariffs, India slashed duty on more than two dozen items in the Union Budget. This included a reduction in tariff on motorcycles with an engine capacity above 1,600cc from 50% to 30%. Just days before the PM’s visit, the government also slashed duty on bourbon whisky to 50% from 150%. The US is its largest producer. However, the domestic industry protested against the duty cut, seeking a phased reduction over a period of 10 years.
High agri tariffs
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Just days after releasing a report on non-tariff barriers that the US faces across the globe, including India, the US on April 3 announced 27% ‘reciprocal’ tariffs on India. The United States Trade Representative (USTR) report on trade barriers criticised India’s high applied tariffs on a wide range of goods, including vegetable oils, apples, maize, motorcycles, automobiles, flowers, natural rubber, coffee, raisins, walnuts, and alcoholic beverages. The USTR report also flagged India’s regulations on the import of milk, pork, and fish products, stating that they require GM-free certificates “without providing a scientific or risk-based justification.” It reiterated a long-standing American concern over India’s agricultural support programmes, which, according to the US, distort markets.
Even with a 27% tariff, India did not seem to have fallen out of favour with the US, as Washington had set steeper tariffs on other Asian countries. It has 54% on China, 46% on Vietnam, 37% on Bangladesh, and 36% on Thailand. Tariffs stood at 19% on Indonesia and 48% on Laos. However, the tariffs on India were higher than the 24% duty on Japan and 25% on South Korea. Duty on the EU stood at 20%, while UK faced a 10% tariff.
90-day pause window
As the US paused the implementation of the ‘liberation day’ tariffs for 90 days, it raised hopes that New Delhi would use the opportunity to strike a deal and begin attracting investments and export opportunities, moving away from China. However, this marked the beginning of fresh tensions between the two countries that eventually resulted in India facing the steepest tariffs on any country.
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In response to a terrorist attack by Pakistan-based terrorist group “The Resistance Front” (TRF) in Pahalgam, India launched “Operation Sindoor” on 7-8 May 2025, neutralising terrorist installations in Pakistan. Pakistan’s Director General of Military Operations (DGMO) called the Indian DGMO, and it was agreed between them that both sides would stop all firing and military action on land and in the air and sea with effect from 17:00 hours Indian Standard Time on 10th May 2025.
However, the Trump administration claimed that the US used tariff leverage on both countries to stop the war. Later on May 23, US officials defended the use of emergency powers to impose sweeping tariffs in the US Court of International Trade, stating that withdrawal of Trump’s emergency tariff powers would disrupt trade deals the US is pursuing and jeopardise the ceasefire between India and Pakistan, court filings showed.
India-US ties worsen
Despite Trump’s multiple assertions that US tariffs resulted in a ceasefire between India and Pakistan, New Delhi maintained that the ceasefire followed a call made by Pakistan’s DGMO to the Indian DGMO on May 10th. While Pakistan nominated Trump for the Nobel Peace Prize, India refrained from any such gesture. While the US continued to sign multiple trade deals, including with the EU, Japan and Vietnam, a deal with India remained elusive largely due to American demands related to agricultural market access. Ramping up pressure, Trump on August 7 doubled the tariffs on India to 50%.