Advantage India after Double Whammy of Trade Deals

Six Factors that accelerated India US Trade Deal, coming days after India EU FTA agreement

With two major trading partners, the European Union and the United States, offering a free trade agreement (FTA) within a week, India will gain tremendous advantage in managing trade relations with other major players in this domain, particularly China. Evidently, the Trump Administration was bound to move after the India-EU trade agreement, though the final contours are yet to be finalised. India may also have accelerated BTA efforts with the United States, not as a reaction to the EU deal, but because the US market is equally—if not more—important to India’s exporters.  Thus, the announcement of a tariff reduction by President Trump was anticipated, but the timing, as is usual with the leader, may have surprised many.

How the Deal Was Announced?

President Trump posted on his Truth Social account: “It was an Honor to speak with Prime Minister Modi, of India, this morning. He is one of my greatest friends and, a Powerful and Respected Leader of his Country. We spoke about many things, including Trade, and ending the War with Russia and Ukraine.  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, which is taking place right now, with thousands of people dying each and every week! Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%. They will likewise move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO. The Prime Minister also committed to ìBUYAMERICAN,î at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products. Our amazing relationship with India will be even stronger going forward. Prime Minister Modi and I are two people that GET THINGS DONE, something that cannot be said for most. Thank you for your attention to this matter! PRESIDENT DONALD J. TRUMP.”

After the conversation, PM Modi posted on microblogging site X: “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. When two large economies and the world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation. President Trump’s leadership is vital for global peace, stability, and prosperity. India fully supports his efforts for peace. I look forward to working closely with him to take our partnership to unprecedented heights. @POTUS @realDonaldTrump.”

What the quid pro quo is between the two sides is unclear, but the reduction of tariffs from 25% to 18% and the dropping of the penalty for drawing oil from Russia will be a boon for India.

Six Factors that led to the acceleration of the Indo-US Deal?

EU FTA Impact. The India–US trade deal did not emerge directly because of the FTA, but the EU pact influenced the strategic environment. Earlier Indian officials explicitly denied that US pressure or tariff actions drove the India–EU deal, noting no such discussions took place. However, analysts argue that the finalisation of the India–EU FTA after nearly two decades created indirect momentum by showcasing India’s willingness to conclude major trade agreements and by raising expectations that the US might accelerate its own negotiations. Some experts believe the EU deal prompted Washington to reconsider tariffs and market access demands, though others stress that the India–US trade talks remain stalled over deeper disagreements over agriculture, digital trade, medical devices, and environmental standards. Overall, the India–EU FTA acted more as a geopolitical signal than a direct trigger, and the India–US deal remains unresolved.

Indo-US Strategic Partnership. Underlying the trade deal is the overall strategic partnership, which has been reaffirmed from time to time despite the differences over tariffs. Thus, India US engagements have continued apace thereby ensuring that the strategic momentum was disrupted but not lost.

Other FTA Leverages: India has moved apace with FTAs not just with the UK but also with Canada and New Zealand, amongst others, thereby adding to a sense of isolation, possibly in Washington, and acting as a leverage.

Strategic Patience. India exercised strategic patience and did not yield to pressure from the United States, despite statements from multiple ministers and officials from that country who were seen as the core supporters of President Trump. New Delhi moved forward with a resolve to achieve a compromise only on favourable terms, without giving in to frequent tantrums or to the US President's claims on the Indo-Pak ceasefire. Mr Modi, however acknowledged Mr Trump’s quest for peace in his X statement after the conversation with Mr Trump.

TACO Factor. India was also banking on the TACO factor of US President Donald Trump walking back on threats and projections, particularly against strategic allies and partners.

Trump-Modi Relationship: As acknowledged by both leaders in their opening statements on the agreement reached over tariffs, the Trump-Modi Relationship, symbolised by the words ‘my greatest friend’ and ‘dearest friend’ from both leaders, played a role.

Whatever the background, the announcement of an agreement, particularly the lowering of tariffs from 25 to 18 per cent with immediate effect, is a boost that the stock markets in India have been looking for after a relatively insipid budget.