On February 2, the US cut its tariff on Indian goods to 18% after India agreed to stop new purchases of Russian oil. It is the clearest example yet of trade policy and foreign policy being negotiated as one package.
Six months after the United States doubled its tariff on Indian goods to 50%, it brought the number down to 18%. On February 2, President Trump announced the deal after a call with Prime Minister Modi. The price was not a change in India’s own tariffs, at least not mainly. It was a change in where India buys its oil.
The trade
Half of the 50% tariff had been a penalty for India’s purchases of Russian crude, which India had bought in huge volumes since 2022 because Western sanctions made it cheap. Under the deal, the US rescinded that 25% penalty and set an overall rate of 18% on Indian goods. Indian refiners agreed to honour existing contracts but place no new orders for Russian oil, though a few with limited alternatives may keep importing for a while. The US also said India would cut tariffs on many American industrial and farm goods, and buy more US energy, technology and agricultural products over time.
Trade policy used to be about tariffs. In 2026 it is about everything else too.
Who gains, who pays
Exporters in textiles, jewellery and seafood gain the most. At 18%, they are still worse off than before 2025, but they are back within competitive range of Vietnam and Bangladesh. The cost lands on India’s import bill. Russian crude had been sold at a discount to global prices, and replacing it with oil from the Gulf, Africa or the US means paying closer to full price. Economists estimate the extra cost in billions of dollars a year, a sum that eventually shows up in fuel subsidies, oil company profits or prices at the pump.
The deal was announced, not yet formalised, so details may shift. Its lasting lesson is about method. Tariffs are no longer a matter for trade ministers alone. They are being used as bargaining chips in negotiations over energy, defence and diplomacy, and every country that trades with the US now has to price that in.
Sources: White House and USTR statements, February 2–3, 2026; Reuters reporting.
- The US removed the 25% penalty tied to Russian oil and set an 18% tariff on Indian goods.
- Indian refiners will honour existing contracts but place no new Russian orders.
- The US says India will lower tariffs on many American goods and buy more US energy and technology.
- Russian oil was cheap. Replacing it will raise India’s import bill somewhat.
Read this far? You’d like the weekly email.
One email a week, covering exactly this kind of thing. No spam, no stock tips.
