Indian Council of World Affairs

Abstract: The trade agreement negotiated between India and the United States will help reset the strained economic relations, nonetheless, there are broader strategic undercurrents to the negotiations that need to be understood.  

Introduction 

In a joint statement on 7 February 2026,[i] India and the United States announced they had reached a framework for an interim agreement regarding reciprocal and mutually beneficial trade. This is the first step in the multi-sectoral bilateral trade agreement negotiations between the two nations that were launched in February 2025 by Prime Minister Modi and President Trump. The India-US trade agreement enhances market access for both nations. It also commits the two nations to enhancing supply chain resilience and addressing barriers to digital trade, paving the way for a more integrated economic partnership. 

Economics plays a critical role in the US national security strategy, making the conclusion of a trade agreement vital for revitalising the India–US relations. Within the US economic policy, tariffs are an important component for the Trump Administration. In this situation, the reduction in tariffs to 18 per cent from 50 per cent provides India has a comparative advantage over its competitors, such as the ASEAN nations, which continue to face higher tariffs. In a competitive global economy, any such advantage would be beneficial for Indian industries. The challenge for India would be to optimise this opportunity to integrate itself into the regional supply chains, attract more foreign direct investments and strengthen its manufacturing bases to be able to export more. 

While the current trade agreement will help reset the strained economic relations, there are broader strategic undercurrents to the negotiations that need to be highlighted.  

India’s Response to US Tariffs 

India and the United States were in the midst of trade negotiations when, in August 2025, the Trump Administration imposed an additional 25 per cent duty on Indian goods on top of the existing 25 per cent, pushing the total duty to 50 per cent. The additional tariffs were linked explicitly to India’s purchase of energy from Russia. India has time and again highlighted that its national energy security imperatives will continue to guide its policies without external pressure. It further pointed out that China, which is the largest buyer of Russian energy, was not penalised, along with the fact that the European Union and the United States continued to import Russian energy resources. This highlighted the geopolitical nature of the tariffs imposed rather than the economic reasoning. 

India’s response to the increasing tariffs has been a mix of national policy push and diplomatic and political overtures. India remained the world’s fastest-growing major economy and surpassed Japan to become the fourth largest economy in the world. Domestically, India amplified its focus on bolstering the productive capacity of the economy and strengthening the levers of domestic demand. Government initiatives aimed to increase opportunities for both domestic consumption (given the large population) and encourage domestic investment to bring about accelerated growth & development and generate jobs & income. 

Internationally, India fast-tracked the process of trade diversification. It strengthened its engagements with European countries, sought to deepen ties with Southeast and East Asia, and remained active in dialogues with partners across multiple forums. 

In 2025, India signed trade agreements with Oman and the United Kingdom (UK) and successfully concluded trade agreements with the European Union (EU) and New Zealand. The India-EU trade deal, along with India’s free trade agreement with the UK and the EFTA,[ii] effectively opens up the entire European market for Indian businesses, exporters and entrepreneurs.[iii] Through these agreements, India has steadily expanded its global trade partnerships to strengthen economic growth, create jobs, and enhance its global standing.[iv] The aim has been to reduce dependence for Indian exports to any single market, with the agreements designed to open new avenues for trade and investment while protecting India’s core economic interests. It combines tariff reduction, simpler rules for trade, strong provisions for services, and measures that make professional mobility easier.[v]

As India negotiated these economic agreements, it also remained politically engaged with all power centres. President Putin’s visit to India (December 2025) celebrated the 25th anniversary of the Declaration on Strategic Partnership between the two nations. The joint statement[vi] released highlighted their commitment to a broad range of issues, including the Arctic, civil nuclear cooperation and space cooperation. This was apart from their ambition to expand bilateral trade. On the sidelines of the Shanghai Cooperation Meeting 2025, Prime Minister Modi met with President Xi.  Here, ‘they reaffirmed that the two countries were development partners and not rivals (emphasis added), and that their differences should not turn into disputes. A stable relationship and cooperation between India and China … are necessary for the growth and development of the two countries, as well as for a multipolar world and a multi-polar Asia befitting the trends of the 21st century’.[vii]

In 2026, India will host the BRICS Summit, likely to be attended by President Xi Jinping, and is scheduled to host the next Quad Summit meeting. Apart from these, New Delhi has also welcomed high-level delegations from various countries. Following Russian President Vladimir Putin’s visit to India, Ursula Von der Leyen and European Council President António Costa were chief guests at the Republic Day parade (January 2026). In addition to leaders such as President Macron (France) and President Luiz Inácio Lula da Silva (Brazil), ministerial delegations from forty-five countries and the UN Secretary General and Senior Officials from several International Organizations participated in the India–AI Impact Summit 2026 in New Delhi (February 2026).[viii]  This multi-aligned foreign policy is based on the principle of multipolar balance as opposed to zero-sum alignments.

Conclusion

India’s response to the tariff escalations was not limited to addressing issues of goods and services but involved questions of economic and political sovereignty. New Delhi’s engagement with other partners, including the conclusion of trade agreements, is part of its broader strategic outlook to build partners to address evolving global trade dynamics and disruptions, shifting geopolitical groupings, and a desire to build mutually beneficial economic partnerships. The negotiations bring together senior government officials, trade negotiators, and businesses from both sides to identify roadblocks, suggest means to improve market access, and lay the foundations for increased channels for communication. 

At a time when the global economic order is navigating complex supply chain disruptions, digital economy transitions, and growing geopolitical competition, increased engagements promote market access for goods, services, investments, and people. India is diversifying its trade and defence partnerships to build both leverage and secure its national interests. The focus has been on creating alternatives for India in a volatile world. In the various trade agreements that India has signed, it has prioritised economic and strategic autonomy over a decisive geopolitical realignment.

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*Dr. Stuti Banerjee, Senior Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.

Endnotes

[i] Ministry of Commerce, GoI, " United States-India Joint Statement, 07 February 2026,” https://www.pib.gov.in/PressReleasePage.aspx?PRID=2224783®=3&lang=2, Accessed on 12 February 2026

[ii] European Free Trade Association (EFTA) is the intergovernmental organisation of Iceland, Liechtenstein, Norway and Switzerland. The India–EFTA Trade and Economic Partnership Agreement (TEPA), signed on 10 March 2024 in New Delhi, came into force on October 1, 2025.

[iii] Ministry of Commerce and Industry, GoI, “India–EU Free Trade Agreement Concluded: A Strategic Breakthrough in India’s Global Trade Engagement January 2026,” https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219065®=3&lang=2#:~:text=In%202025%2C%20India%20signed%20trade,Indian%20businesses%2C%20exporters%20and%20entrepreneurs.,Accessed on February 12, 2026

[iv] Press Information Bureau, GoI, “India – New Zealand Free Trade Agreement 22 December 2025).” https://www.pib.gov.in/PressNoteDetails.aspx?id=156654&NoteId=156654&ModuleId=3®=3&lang=1, Accessed on February 12, 2026

[v] Press Information Bureau, GoI, “India–UK CETA July 2025),” https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154945&ModuleId=3®=3&lang=2, Accessed on February 12, 2026

[vi] The joint statement is available at https://www.mea.gov.in/bilateral-documents.htm?dtl/40410

[vii] Ministry of External Affairs, “Prime Minister's bilateral meeting with Chinese President Xi Jinping (August 31, 2025),” https://www.mea.gov.in/press-releases.htm?dtl/40072/Prime_Ministers_bilateral_meeting_with_Chinese_President_Xi_Jinping_August_31_2025, Accessed on February 12, 2026

[viii] Ministry of External Affairs, “World Leaders at the India-AI Impact Summit 2026, (13 February 2026), https://www.mea.gov.in/press-releases.htm?dtl/40773/World_Leaders_at_the_IndiaAI_Impact_Summit_2026Accessed on 20 Feb4eruary 2026