India and the US Rewire Trade in the Indo-Pacific
•February 9, 2026
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Why It Matters
By lowering tariffs and tying trade to energy and security commitments, the deal reshapes economic ties between two major democracies and signals a coordinated front against China’s trade dominance. For businesses and investors, the reduced tariff barrier restores market confidence, while the geopolitical shift underscores the growing importance of the Indo‑Pacific in global trade and security strategies.
India and the US Rewire Trade in the Indo-Pacific
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The United States and India have reached an interim trade agreement that slashes tariffs and recalibrates their economic ties – a development with far-reaching implications for both countries and the broader Indo-Pacific.
Announced in early February 2026, the framework deal reduces U.S. import duties on Indian goods to 18% from a punitive 50% and commits India to halt Russian oil purchases in favor of U.S. energy imports. Both nations describe this as a “reciprocal and balanced” arrangement that will boost bilateral trade, provide tariff relief, and lay groundwork for a fuller trade pact.
Coming after months of escalated tariffs and diplomatic strain, the deal marks a decisive reset in U.S.-India economic relations and underscores the strategic convergence of the two democracies in an era of shifting supply chains and great-power competition.
From Trade War Tactics to a Tariff Truce
This interim accord represents a pivot away from the tariff wars of recent years toward a more constructive bilateral trade relationship. Under President Donald Trump, U.S. trade policy (2016–2020) was defined by aggressive tariffs, deal-by-deal bargaining, and a turn from multilateral free trade frameworks to bilateralism.
Trump’s first term saw punitive duties on rivals and allies alike – exemplified by sweeping tariffs on Chinese goods and “reciprocal” levies on countries with high trade surpluses – as he sought to renegotiate what he viewed as unfair trade relationships. India was no exception: after Trump’s return to office in 2025, the U.S. imposed a 25% “reciprocal” tariff on virtually all Indian imports, and by August 2025 Trump doubled the duty to 50% to pressure New Delhi over its Russian oil imports.
These actions pushed India into the highest U.S. tariff bracket (on par with adversaries like Syria), jolting a relationship that had been steadily improving for two decades. Indian officials protested the “unreasonable” 50% tariff as unjust punishment – noting that India’s Russian oil purchases were driven by energy security, even as Western nations continued certain trades with Moscow.
The steep tariffs jeopardized up to 70% of India’s exports to the U.S., stalled some foreign investment plans, and made India’s stock market the worst-performing among emerging markets in 2025 as foreign investors pulled out capital en masse.
It was against this fraught backdrop that negotiators pursued an off-ramp. The new interim deal effectively rescinds the extra 25% punitive tariff (imposed over Russian oil) and leaves in place a single 18% U.S. tariff on Indian goods.
While 18% is still high by historical standards, it brings India “broadly in line with its Asian peers on tariff rates” (typical range ~15–19%). This concession eliminates what had been a disproportionate drag on India’s export competitiveness and on the rupee. In exchange, India has “committed to stop directly or indirectly importing” Russian oil, severing a major link to Moscow in its energy supply.
New Delhi will instead source more oil and gas from the U.S. (and potentially U.S.-approved suppliers like Venezuela), cementing a fledgling energy partnership with Washington. Prime Minister Narendra Modi hailed the tariff cut as “great news” and expressed “big thanks” to Trump, framing it as a win for India’s 1.4 billion citizens and for U.S.-India friendship.
For Trump’s part, the deal validates his hardball strategy: he leveraged tariffs to extract commitments on both trade and geopolitics, reinforcing his belief in transactional bilateral deals rather than traditional free-trade accords.
Notably, the interim agreement is explicitly a stepping stone toward a broader U.S.-India Bilateral Trade Agreement (BTA). It reaffirms negotiations launched in early 2025 and is expected to be formalized by March 2026. The deal’s text lays out immediate market-access gains while deferring more complex issues to the comprehensive BTA talks.
In effect, this truce stops the bleeding caused by the tariff war and restores stability for businesses, allowing both sides to move forward on a more ambitious trade partnership. U.S. business groups cautiously welcomed the development as “progress” toward a long-sought market-opening deal.
Indian trade officials likewise cheered “unprecedented opportunities” now unlocked for exporters and entrepreneurs to “Make in India for the world”, even as some American small-business coalitions grumbled that an 18% import tariff still amounts to a hefty tax increase from pre-2025 levels.
Overall, the tariff truce has shifted sentiment markedly: it removes a major overhang on India’s economy (which the U.S. Chamber of Commerce called a step back to “stable ground”) and signals to investors that U.S.-India economic ties are on a more predictable, upward trajectory.
Indo-Pacific Alignment: Countering China and Reordering Trade Networks
Beyond the bilateral trade ledger, this agreement carries strategic weight in the Indo-Pacific geopolitical context. It aligns the U.S. and India more closely as economic partners at a time when both are reevaluating their relationships with China and seeking to “realign global supply chains” away from dependence on Chinese manufacturing.
Washington and New Delhi openly describe their trade collaboration as part of a broader strategy to diversify supply chains, enhance energy security, and address “non-market policies of third parties” – an unmistakable reference to China’s trade practices.
In practical terms, the U.S. has secured India’s cooperation in isolating two strategic rivals: Russia (through the oil import halt) and China (through joint scrutiny of Chinese economic behavior). The joint statement even notes that the countries will coordinate on export controls for sensitive technologies and investment screening to guard against unwanted Chinese influence. This represents a remarkable tightening of U.S.-India strategic alignment, considering India’s traditional non-aligned stance.
For India, the deal comes amid its delicate balancing act in the Indo-Pacific. Long wary of being too entangled in great-power rivalry, India has nonetheless drifted closer to the U.S. orbit as tensions with China have risen.
A bloody border clash with Chinese forces in 2020 and China’s expanding footprint in South Asia have accelerated New Delhi’s pivot toward the U.S. and its allies. India has joined the Quad (Quadrilateral Security Dialogue) alongside the U.S., Japan, and Australia, and increased military exercises and defense tech cooperation with America.
However, economically India had hesitated to open its markets or formally join U.S.-led trade initiatives. It notably opted out of the China-centric Regional Comprehensive Economic Partnership (RCEP) in 2019, fearing that…
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