OPED by Wing Commander (R) JP Joshi
After World War II, the United States shaped the global economic order in ways that benefited not just America but the world at large.
The US was instrumental in promoting free trade, open markets, and rule-based economic activity through institutions such as the IMF, the World Bank, GATT, and the WTO.
Washington promoted free trade, assuming a role many scholars called an “altruistic hegemon.”
American leadership had the necessary power, which it wielded, with the aim of an orderly world and global stability. This was not out of charity; it was strategic foresight, backed by economic might and military security guarantees that stabilised global commerce for decades.
However, in the aftermath of the COVID pandemic in 2020, global supply chains were disrupted. This was further accentuated by the Russia-Ukraine conflict; however, Indo-US trade continued to grow, with a trade surplus in India’s favour.
In FY 2023-24, during the pre-Trump 2.0 era, the US and India were major trading partners. The US was India’s largest goods destination, with total goods exports and imports valued at 77.5B USD and 42.2B USD, respectively.
India exported 41.6B USD in services and imported 26.5B USD from the US. India exported a wide range of goods — electric & electronic equipment, gems & jewellery, pharmaceuticals, engineering products, petroleum products, textiles, chemicals, IT & software-related services, business process/consulting, engineering & R&D, and others.
The US exported aircraft, machinery, energy products, and tech equipment to India. According to US government data, India was Washington’s 10ᵗʰ largest goods trade partner in 2024, and the U.S. ran a substantial goods trade deficit with India, to the tune of 35.3B in goods and another 15.1B USD in services, making it a combined trade surplus of 50.4B USD in India’s favour.
In FY 2024-25, the data for goods exports and imports to/ from the US registered a growth to 86.5B USD and 45.3B USD. This growth was registered in FY 2024-25. President Trump’s inauguration was held on Jan 20, 2025, during the last quarter of the Indian FY 2024-25.
Trump 2.0: From WTO Rules to Bilateral Deals
President Donald Trump was elected to a second term on the Make America Great Again (MAGA) plank, promising to bring manufacturing back to the US, create jobs, and make other pledges, including immigration reforms.
In keeping with his promise to the American people, he dispensed with much of the old multilateral architecture, preferring bilateral, transactional deals, even with the US’s close allies and NATO partners. International rules no longer mattered. What mattered to him were immediate, measurable outcomes: trade balances, tariff adjustments, and strategic alignment.
In Trump’s worldview, which is loud, personal, executive orders-based, and media-centric, solving world conflicts was not just geopolitics, but was also about bringing peace in war-torn zones like Palestine and Ukraine. He publicly tied his posture on Ukraine to broader international cooperation, and he saw trade as a direct lever to achieve geopolitical outcomes.
India’s continued purchase of Russian oil, a practical decision based on energy security and price competitiveness, suddenly came under the crosshairs of this transactional approach.
Washington signalled that trade penalties could be linked directly to energy sourcing choices. In 2025, the US threatened and, thereafter, imposed exceedingly high tariffs on Indian goods, including punitive duties tied to Russian oil imports.
These acts were not based on routine trade disputes; they were tools to exert geopolitical pressure through tariff regimes, targeted explicitly at changing India’s strategic economic behaviour.
Weaponising Trade: The Tariff Squeeze
In 2025, under executive orders and tariff actions, Indian exports to the United States faced reciprocal tariffs that, in practice, reached as high as 50% on certain product categories, as well as a combination of base tariffs and penalties linked to Russian oil procurement.
This situation was unprecedented. Tariffs exceeding 25% were rare among major economies, and even rarer among close partners, such as India and the US. Yet under Trump’s pressure strategy, tariffs became both a lever and a symbol of leverage, designed to push India toward alignment with American geopolitical priorities, including energy diversification away from Russian supplies toward Western sources.
India’s response was measured. There was no public grandstanding against the US. But Indian exporters felt the squeeze on costs, uncertainty, and disruptions to market access.
Then came the Pahalgam terrorist attack in April 2025, followed by Operation Sindoor in May 2025; a military operation in retaliation for the terrorist attack in Pahalgam, which was sponsored by a Pakistan-based terror organisation, as per Indian intelligence sources.
India halted the operation on May 10 after achieving its goals. President Trump announced that he had arbitrated the cease-fire between India and Pakistan.
Pakistan immediately accepted and confirmed this announcement and also nominated President Trump for the Nobel Peace Prize. New Delhi did not immediately respond to the above announcement.
PM Modi later confirmed in parliament that “no leader in the world asked us to stop Operation Sindoor”. This complicated the geopolitics between the two, and further chilled high-level diplomacy between New Delhi and Washington.
Post-Operation Sindoor: A Deep Freeze
While the details of Operation Sindoor are beyond the scope of this op-ed, its effect on bilateral relations was palpable.
Between late 2025 and early 2026, senior diplomatic exchanges stalled, strategic dialogues were postponed, and the personal rapport between leaders, which is always fragile, was under strain; a deep freeze seemed to hit the Indo-US relationship. Trade negotiations, which had been grinding forward, despite tensions, slowed further.
Global economic forces have their own way of thawing a deep freeze in any relationship, and it did so in this relationship, too. Political realities prompted a thaw.
Political Realities Force a Thaw
Behind closed doors, the freeze was hurting both sides.
American businesses, from pharma buyers to tech firms, flagged that punitive tariffs on India would raise costs for US consumers, disrupt supply chains, and fuel inflation, precisely the economic pressures Trump could least tolerate domestically.
Meanwhile, in India, exporters, industries, and MSMEs warned that prolonged tariff escalation would depress growth, squeeze margins, and undermine confidence at a time when the global economy was in flux.
Faced with real economic pressure and political realities at home, both capitals pivoted towards accommodation, and the Interim Trade Framework was announced.
The Interim Trade Framework
On Feb 07, 2026, the US and India jointly announced that they had reached a framework for an Interim Agreement regarding “reciprocal and mutually beneficial trade”.
The “framework reaffirms the countries’ commitment to the broader U.S.-India Bilateral Trade Agreement (BTA) negotiations, launched by President Donald J. Trump and Prime Minister Narendra Modi on February 13, 2025, which will include additional market access commitments and support more resilient supply chains”.
The joint statement further affirmed that the Interim Agreement stands for “a historic milestone in the two countries’ partnership, demonstrating a common commitment to reciprocal and balanced trade based on mutual interests and concrete outcomes”.
This is not a classic free trade agreement; it is a pragmatic de-escalation and a renewal of engagement, aptly described as a framework rather than a final treaty.
Under this arrangement:
US tariffs on Indian goods were effectively reduced in many categories. Firstly, the additional 25% penal tariff tied to Russian oil purchases was rescinded, effectively lowering trade barriers and signalling a willingness to reset tensions. The effective duty rate on affected products, including the penal tariff, had been as high as 50% but was now cut to 18% in key cases.
India and the US set up sectoral working groups focused on manufacturing, technology, critical minerals, and digital trade, with the aim of exploring deregulation, market access, and joint initiatives.
Also, the two nations will work to further expand market access opportunities through negotiations on the BTA. The United States affirms that it intends to take into consideration, during the negotiations of the BTA, India’s request that the United States continue to work to lower tariffs on Indian goods.
India also agreed to limit duty concessions on specific agricultural imports, including 5 lakh tonnes of dried distillers’ grains under a capped quota, preserving domestic sensitivities.
Importantly, Indian officials clarified that the US-India trade target figures (such as a $500 billion in five years import target from the US) are aspirational rather than binding commitments, emphasising that trade decisions will be guided by Indian economic needs.
The thaw in the Indo-US relationship, signified by the tenor of the positive bilateral agreement, is significant, with both sides acknowledging that the agreement is mutually beneficial, leading to a pause on punitive tariffs, a path toward broader cooperation, and a space to develop a comprehensive deal, the BTA, later.
Why This Framework Works, for Now
For the US, the interim agreement preserves leverage without full concession. Washington can claim it has moderated tariffs in exchange for Indian commitments to enhanced market access and strategic cooperation — while keeping pressure points available if India backslides on agreed priorities.
For India, the framework eases immediate tariff burdens, safeguards sensitive policy domains (such as agriculture and energy autonomy), and creates diplomatic space to recommence strategic conversations without sacrificing core sovereignty. It resets a volatile negotiation into a structured dialogue.
In short, the interim trade agreement gives India time and space for negotiations and is not a surrender.
A Golden Opportunity For ‘Make in India’
One of the most underrated elements of this interim framework is what it implies about value addition and supply chain integration. Instead of a simplistic export-more model, the framework’s emphasis on dialogue across manufacturing, technology, and skills signals a shift toward higher-value-added trade.
This is an opportunity of a lifetime for the ‘Make in India’ initiative by the Modi government, if only India can meet the challenges of upgrading manufacturing quality, train and upskill the labour force, and encourage MSMEs to integrate into the global supply chains.
All these initiatives are needed to deepen domestic value addition, which will help India diversify its exports not only to the US and Europe, but also globally.
With the above in place, this interim agreement could become a springboard, much bigger than a mere agreement.
Hard Negotiations & Red Lines
What makes this framework notable is what didn’t happen, as listed below.
India did not commit to sweeping agricultural market openings beyond limited quota concessions.
There was no formal obligation to permanently cease Russian oil purchases, and Indian officials emphasised the national interest in energy decisions.
Data localisation, digital sovereignty, and strategic autonomy remained in India’s control.
These were India’s red lines, and they held.
The negotiations were tough because both sides understood the stakes: national interest, economic stability, and long-term strategic posture.
The Way Forward
The interim framework should not be seen as the destination for India. Instead, it marks the beginning of a crucial phase in which India must make strategic decisions to shape its future.
Among the most important steps are investing substantially in skills development and technological advancement, which will enable the country to move up the value chain and increase its global competitiveness.
Strengthening the capacities of Micro, Small, and Medium Enterprises (MSMEs) is essential for these businesses to compete internationally. Enhancing logistics and port infrastructure will further improve India’s competitiveness by ensuring the efficient movement of goods.
At the same time, India should focus on diversifying its export markets, even as it continues to deepen trade relations with the United States.
While the framework provides India with a runway for growth, the responsibility for take-off rests entirely with India itself. Success will depend on the country’s ability to make bold investments, implement necessary reforms, and pursue opportunities with determination.
Conclusion
The Indo-US Interim Trade Framework, signed on Feb 07, 2026, does not stand for a sweeping shift in global trade history, as it is not a comprehensive free trade agreement. Rather, it reflects the realities of the current era, which are characterised by a pragmatic, transactional, and strategic approach to trade.
The days when post-World War II ideology guided free trade policy have passed. Today, trade is shaped by realpolitik, with tariffs used as instruments of leverage, and alliances carefully balanced in response to shifting geopolitical dynamics.
In this unsentimental and practical environment, India has managed to stay the course. The country has reduced immediate pressures and secured the breathing space it needs, all while safeguarding its strategic autonomy.
Amid today’s pragmatic, transactional global trade landscape, India has successfully upheld its policy direction. It has navigated current challenges and held firm to its long-term aims.
If India takes full advantage of this opportunity by strengthening domestic capabilities, expanding into new markets, and moving up the value chain, then the interim framework could be remembered not as a pressure point but as a catapult for future growth.
Time is of the essence. The world is seeing closely. India’s real journey begins now.
- OPED by Wing Commander (R) JP Joshi, IAF
- THIS IS AN OPINION ARTICLE. VIEWS PERSONAL OF THE AUTHOR
