On February 2, 2026, President Donald Trump announced the achievement of strategic agreements with Indian Prime Minister Narendra Modi.
According to his statement, the United States committed to reducing the 50% tariff pressure on New Delhi to 18%, while India agreed to eliminate tariff and non-tariff barriers for the US, abandon purchases of Russian oil in favor of supplies from the US and Venezuela, and begin implementing a five-year program to purchase American goods totaling $500 billion.
Although the formal signing of the agreement is expected in mid-March, the existence of corresponding official positions from Donald Trump and Narendra Modi indicates their readiness to sign the “big deal.”
In line with the White House’s foreign policy strategy, India is one of the key states for implementing the policy of “strategic decoupling” between the US and the PRC. This is driven by India’s geoeconomic, demographic, and industrial potential, which is capable of competing with China’s on a systemic—and civilizational—level.
Given the already established multibillion-dollar investment and security presence of the US in India, the Donald Trump administration never considered a scenario of prolonged conflict with Narendra Modi’s government as an acceptable strategic position.
Instead, it sought to use the imposition of tough trade conditions to transform the model of Indian foreign policy—which has traditionally been based on principles of non-alignment and opportunistic balancing—that was unacceptable to the US.
In parallel, in the Pakistani dimension, this logic involved wresting Chinese influence over Islamabad using a model now visible in the White House’s approaches to Russia, Belarus, and North Korea.
Notably, it was against the backdrop of escalating US-Indian trade disputes that Washington significantly intensified its strategic engagement with Pakistan.
In June 2025, Donald Trump hosted Pakistan Army Chief of Staff Field Marshal Asim Munir at an unprecedented private dinner at the White House—the first time in history that a US president had received a Pakistani military leader who did not hold the position of head of state.
In July 2025, Washington and Islamabad signed a trade agreement that provided for reducing tariffs on Pakistani exports from 29% to 19%, joint development of Pakistani oil fields, and expansion of American investments in the extraction of critical minerals—particularly in Balochistan province, which holds significant reserves of copper, gold, and lithium.
In August, the State Department designated the Balochistan Liberation Army (BLA) as a terrorist organization—a move that strengthened Islamabad’s position and was carried out in sync with Munir’s second visit to the US.
This series of steps, taken amid the highest level of US-Indian tensions in a decade, openly signaled to New Delhi Washington’s readiness to integrate Pakistan into alternative strategic combinations, which substantially raised the cost of the Indian government’s delay in compromising on the “big deal.”
As a result, the trade negotiations between the US and India, which had slowed in the summer of 2025, were not canceled; instead, they were intensified in critical sectors—primarily defense and access to rare earth metals.
At the same time, even a relatively short period of tariff escalation inflicted noticeable economic and financial losses on India. After the 50% tariffs took effect on August 27, 2025, Indian exports to the US experienced a systemic decline: in September they fell by 11.9% (to $5.5 billion), and in October, despite a partial recovery, they remained 8.6% below the level of the same period in 2024.
According to the Indian government’s estimates, the new tariffs threatened $48.2 billion in Indian exports. The Global Trade Research Initiative (GTRI) analytical center forecasted a reduction in overall exports to the US from $86.5 billion to approximately $50 billion.
The hardest-hit sectors were labor-intensive ones—textiles, jewelry, leather goods, and seafood—where individual exporters reported up to a 50% drop in turnover.
Textile hubs in Surat and Noida sharply cut production, and the competitiveness of Indian manufacturers collapsed compared to Bangladesh and Vietnam, which retained a 20% tariff rate.
The impact on GDP was estimated in the range of 0.3 percentage points (using Moody’s methodology) to 0.9% of GDP (according to Nirmal Bank estimates).
Narendra Modi’s government was forced to put together a package of anti-crisis measures to support the affected sectors, including interest rate subsidies, credit guarantees, and reduced certification fees for small and medium-sized businesses.
The tariff confrontation also triggered a major revision of investment strategies toward India. Foreign portfolio investors (FPI) withdrew a record $18.4 billion from Indian stock markets throughout 2025—the largest outflow on record.
The share of FPIs in companies listed on the National Stock Exchange (NSE) fell to 16.9%, the lowest in 15 years. The Indian rupee depreciated by 4.3% over the year, crossing the 90-per-dollar mark and setting a record low of 91.01 in December, making it the worst-performing currency in Asia in 2025 by return.
Broader context for investment vulnerability was confirmed by Reserve Bank of India (RBI) data for fiscal year 2024–25: net inflows of foreign direct investment (FDI) collapsed by 96.5%—from $10 billion to $353 million—due to massive investor exits during IPOs and increased Indian outbound investments.
The “China+1” supply chain diversification strategy, on which New Delhi had bet as a tool for attracting production from the PRC, came under pressure: the 50% tariffs on Indian goods equaled or exceeded rates on Chinese products in key sectors, stripping India of its tariff advantage.
According to ICRIER estimates, the tariffs threatened up to 70% of Indian exports to the US, directly undermining corporate strategies to relocate supply chains to India.
The regulatory climate did not help stabilization independently of the tariffs: in March 2025, Indian customs issued Samsung a $601 million bill in the form of retroactive tax claims over the classification of telecommunications equipment—one of the largest such demands in the country’s history.
Under these conditions, the Reserve Bank of India and the Securities and Exchange Board of India (SEBI) were forced to launch a program of financial market deregulation, holding meetings with more than 200 global asset managers in Europe, Asia, and the US to stabilize investor sentiment.
Prime Minister Modi had no plans for any “break” with the United States, regardless of the public bilateral polemics.
In particular, he counted on reaching a compromise resolution of differences around the “big deal”—especially regarding the requirement to purchase American energy resources at prices significantly higher than Russian ones.
This position stemmed from a long-term strategic calculation according to which India needs US and allied support for the systemic containment of the PRC—a state that has territorial claims on Kashmir and Arunachal Pradesh and is expanding in the Andaman and Laccadive Seas.
An additional catalyst was the rapid rapprochement between Washington and Islamabad: the conclusion of a US-Pakistani trade agreement with a 19% tariff rate—lower than the then 50% for India—and Pakistan’s integration into American security initiatives created the risk of India’s strategic marginalization as the key US partner in South Asia.
At the same time, New Delhi recognized that deepening the “strategic decoupling” between the US and the PRC could strengthen India’s position as the main recipient of capital being withdrawn from Chinese jurisdiction—thereby significantly accelerating its economic growth and civilizational development.
For this reason, Narendra Modi quickly offered the US a compromise solution on the “big deal” shortly after the restoration of American control over Venezuela—the global “treasury” of energy resources capable of replacing supplies from Russia.
A similar role in this logic was played by the restoration of US strategic control over the Panama Canal as the key artery for transporting Venezuelan oil to the waters of the Indian Ocean.
At present, the US and India have converged on a compromise position under which New Delhi will gradually ease protectionism in the agricultural sector, taking into account the electoral needs of the ruling Bharatiya Janata Party (BJP).
The criticality of this issue for Washington stems from the need to satisfy the interests of American farmers, who are under trade pressure from the PRC and are viewed as a “weak spot” ahead of Donald Trump’s potential visit to Beijing in April 2026.
In parallel, India must develop a practical plan for an accelerated transition from Russian to American and Venezuelan energy resources that does not create excessive strain on Indian industry.
At the same time, the United States undertakes to ensure privileged access for Indian goods—primarily technological, pharmaceutical, and resource-based—to the American market, which will allow New Delhi to rapidly attract additional investment from pro-democracy business.
In particular, Prime Minister Modi’s government recognizes that 18% tariffs on Indian goods are much closer to the positions of Japan, South Korea, Taiwan (15%), and Vietnam (20%) than to the PRC (47%).
One factor in softening the demands of the Donald Trump administration was the formation of a free trade zone between India and the EU in January 2026, which, under conditions of maintaining 50% tariffs from the American side, could have threatened US strategic interests as the key moderator of the global transactional economy.
From the Indian side, a factor for concessions was the worsening security situation in border areas: in particular, the prospect of global legitimization of Min Aung Hlaing’s regime in Myanmar, which, according to Prime Minister Modi’s original plan, was to serve as “gates” between the Pacific and India after the civil war ended in favor of resistance forces.
A separate factor in restoring strategic understanding between the US and India was the synchronized pressure on Washington and New Delhi from their key political and economic partners—Japan, South Korea, and Australia.
Given that each of these states has significant strategic interests in India and has actively participated in supply chain diversification over the past decade, the continuation of trade tensions between the US and India was viewed by them as a major destabilizing factor.
This factor gained particular weight in the context of pressure from the government of Japanese Prime Minister Sanae Takaichi, who views India as a fundamental element in supporting the anti-Chinese security architecture in the Indo-Pacific.
Despite the risk of a tactical delay in the formal conclusion of the US-Indian “big deal” in March 2026, the process itself has already acquired signs of irreversibility.
This is evidenced by the behavior of financial markets and regulators: immediately after Donald Trump’s statement, a sharp rise in Indian stock indices and a strengthening of the rupee were recorded for the first time in the last six months, reflecting investors’ reassessment of baseline risks associated with US policy.
Additional confirmation came from the Reserve Bank of India’s position to keep the policy rate at its minimum level, taking into account the stance that Prime Minister Modi’s government has ordered no longer to view the US as a source of systemic trade destabilization.
Furthermore, shortly after the announcement of the agreements between the US and Indian leaders, the operator of the world’s largest oil refining complex—the Indian conglomerate Reliance Industries—began purchasing Venezuelan oil instead of Russian.
Beyond the trade context itself, the compromise reached between Donald Trump and Narendra Modi will unblock several tracks critical to US objectives.
First, the White House will revitalize negotiations on the accelerated development of the India-Middle East-Europe Economic Corridor (IMEC), which stretches from India to Italy, including through Israel.
Throughout 2025, the Donald Trump administration conducted a multi-level campaign to strengthen US positions along the IMEC arteries, which included concluding strategic, anti-Chinese agreements with the governments of the UAE, Saudi Arabia, Greece, and Italy.
The restoration of strategic understanding between Washington and New Delhi allows the US to return to the structural counterposition of IMEC to the arteries of the “One Belt, One Road” initiative, which continue to serve as a source of financing for the Chinese expansion machine and a tool for eroding American influence in Europe.
In this context, the creation of a free trade zone between the EU and India is viewed by Washington as an element of a diversification strategy and a strengthening of a transcontinental alternative to Chinese logistics networks. This is confirmed by the European Commission’s decision to recognize the port of Trieste as the central hub of IMEC.
Notably, beyond the purely economic dimension, circles close to Donald Trump view IMEC also in a narrative-civilizational sense.
In particular, the implementation of the IMEC project is compared to the restoration of the Golden Route—the ancient trade route from India to Italy, which became an important logistics corridor and a channel for the spread of Buddhism eastward, including to Japan, Korea, and Taiwan.
In historical perspective, this route was viewed as an alternative to the later Silk Road, which became entrenched as a result of the expansion of the Mongol Empire and the transformation of trade arteries after the blocking of traditional Indian routes by Islamic monarchies.
Second, after the signing of the “big deal,” the US and India will resume full-scale cooperation within the QUAD coalition—a security initiative that was considered flagship during Donald Trump’s first administration.
Although New Delhi lost the opportunity to host the QUAD leaders’ meeting in 2025 due to differences with the United States, Narendra Modi will clearly be ready to postpone a repeated request for a summit and travel to one of the participating states to adopt a new coalition declaration with a clear defense focus, as desired by the White House.
According to the October statement by Australian Prime Minister Anthony Albanese, such a meeting should take place by the end of March 2026.
Given the planned March visit of Prime Minister Sanae Takaichi and Narendra Modi to Washington to sign the agreement, it is not excluded that the QUAD summit could be held in the United States.
Alternatively, the meeting could be moved to the second half of 2026 and held in Australia, which currently serves as the central security hub for the rest of the QUAD participating states.
Third, the new agreement between the US and India will accelerate progress on one of the most critical directions for Washington—the formation of an alternative to the PRC network for supplying rare earth metals.
According to the December 2025 Amicus Growth report, India possesses the world’s third-largest reserves of rare earth elements; however, the level of their extraction and processing remains disproportionately low, indicating a structural gap between the resource base and production capacity.
With approximately 6.9 million tons of rare earth element oxides (roughly 7% of global reserves), India produced only 2.9 thousand tons of such goods in 2024, ranking seventh among world producers.
This imbalance illustrates a key resource problem for the democratic bloc—a chronic shortage of processing and refining capacity for rare earth metals, exacerbated by environmental restrictions and regulatory barriers.
Notably, the Donald Trump administration fundamentally did not impose tariff restrictions on Indian rare earth metals during the 2025 trade disputes; at the same time, the overall political pressure on New Delhi de facto restrained the development of the relevant partnership.
Unlocking the “big deal” should remove these restrictions and create conditions for launching full-fledged resource initiatives within the QUAD, where American trade support will be combined with Japanese investments and the production and logistics capabilities of Australia.
Practical confirmation of this logic came from the decision of Narendra Modi’s government to allocate an additional $166 million to expand the network for processing rare earth and critical minerals.
The program provides for the formation of domestic stockpiles of lithium, cobalt, nickel, and other resources critical for electric mobility, energy storage systems, and renewable sources, including through 20% subsidies on capital expenditures and performance incentives for companies investing in advanced technologies.
This direction received impetus from the February 3 conversation between U.S. Secretary of State Marco Rubio and Indian External Affairs Minister Subrahmanyam Jaishankar.
The discussion focused on the prospect of formalizing bilateral cooperation in the intelligence, extraction, and processing of critical minerals, as well as scaling such initiatives within the QUAD.
Under these conditions, the strategic understanding achieved between Donald Trump and Narendra Modi goes beyond trade settlement and forms a new configuration for containing Beijing on a global scale.
In particular, the big deal cements India as the central node of American “strategic decoupling” policy from the PRC and, at the same time, as an alternative production, resource, and logistics center for the democratic bloc.
At the same time, the compromise on tariffs, energy resources, and market access is not a concession but rather a tool to compel the transformation of Indian foreign policy from opportunistic balancing to structural participation in US security initiatives.
In the medium term, this agreement unblocks key tracks for the US (IMEC, QUAD, formation of an alternative rare earth supply network), which together will increase systemic pressure on China’s capacity for geopolitical expansion.
For India itself, the “big deal” will become a critical impetus for accelerated civilizational growth through the inflow of capital, technology, and political trust from the US and its allies.
In this sense, the process has already acquired signs of irreversibility. Even if there is a tactical delay in the formal signing of the agreement in March 2026, India’s strategic alignment with the U.S. anti-Chinese architecture is increasingly seen as a fait accompli that will shape the balance of power in the Indo-Pacific for the coming decade.
