US–India Trade War 2025–2026: Modi–Trump Tariff Deal, Supreme Court Ruling & Impact on Indian Exports

Modi & Trump Trade Summit: How 2025 Became a Turning Point – And What 2026 Really Means for India-US Trade...

By the next level | Fact-checked & updated as of February 2026

When Prime Minister Narendra Modi and U.S. President Donald Trump met in early 2025 for trade negotiations, no one could have foreseen the turmoil that would follow in the next 18 months. What began as a contentious tariff dispute quickly spiraled into lawsuits, policy reversals, and an entirely new interim trade agreement – all of which are now changing the face of trade between the two largest democracies in the world.

This blog post will help to clarify the complex policy decisions, economic effects, political fallout, and current trade negotiations that are now influencing India-US trade. All of the information presented in this blog post is based on factual reporting from the world’s top news sources.

1) Background – From Friction to Tariffs (2025)

The early trade dispute

In mid-2025, the relationship between India and the United States turned sour as the Trump administration introduced “reciprocal tariffs” on Indian products. To begin with, a 25% tariff was imposed on most exports, followed by a further 25% – making the total effective tariff on Indian imports to the U.S. an astonishing 50% at times. This was met with strong protests from the Indian government, who termed the tariffs “unfair and unreasonable.”

This was a part of a larger U.S. trade policy that attempted to use tariffs as a means of pressuring India to restrict Russian oil imports – a hotly contested geopolitical and economic flashpoint in 2025.

What the Indian side attempted

The Indian government resisted on the basis of energy autonomy while attempting to mitigate the effects of trade friction. The Indians even lowered their tariffs on certain U.S. imports and made concessions regarding energy and defense equipment imports.

2) The 2026 Trump-Modi “Interim Deal” — Tariffs Come Down (Feb 2026)

In return, India agreed to halt purchases of Russian oil and to lower trade barriers for U.S. goods.

According to Reuters coverage:

• U.S. tariffs on Indian products were reduced from as high as 50% down to 18%.

• In return, India agreed to halt purchases of Russian oil and to lower trade barriers for U.S. goods.

• Some reports said India also committed to large U.S. import pledges, including a possible $500 billion in American purchases over five years. 

Important nuance

In this agreement, it’s important to note that the White House and the Indian government did not immediately release the full text of the agreement, which meant that experts and businesses had to wait until the official tariff rates and legal documents were drawn up before they could fully dissect the agreement.

3) What Changed in 2026 — The Supreme Court & Tariff Chaos

A legal shock: the U.S. Supreme Court ruling

In February 2026, the U.S. Supreme Court ruled that the legal basis on which the Trump administration had introduced emergency tariffs was no longer valid.

This decision effectively cast doubt on much of the tariff structure that had been in place since 2025, including the very instruments on which the punitive tariffs had been placed on Indian goods

Impacts of the ruling

The tariffs imposed under the old system were ruled to be illegal and ceased to be collected.

Companies that had paid these tariffs began to look at potential refunds (totaling ~$170 billion).

Many Indian exporters were left with a gap where there had been a sense of policy certainty, and both parties were forced back to the negotiating table.

Trump’s fallback tariff policy

In light of the court ruling, the U.S. imposed a temporary 10% tariff on all imports, including Indian imports, with the intention of potentially increasing this to 15% or higher depending on the country and status of the trade.

This means that while the punitive 50% tariffs were removed, there is a new tariff baseline that is still in effect, albeit lower but still significant to trade.

4) Economic Reality – Winners, Losers, and Business Reactions

Relief for Indian exporters

Companies with a stake in the U.S. market are finally breathing a sigh of relief:

Gokaldas Exports, a leading textiles company that supplies to the likes of Walmart and Gap, is hopeful of better profit margins as a result of the tariff cuts.

The key export categories of clothing, footwear, and furniture are enjoying better market access as a result of the reduced tariffs compared to the high levels during the pandemic.

Still, some pain points

Not all sectors are beneficiaries:

• Solar power equipment, for example, saw threshold duties in 2025 (up to ~126% duty) in specific cases that complicated investment and planning. While updated, some sector-specific levies remain contentious.

• Ongoing uncertainty from a shifting legal landscape has made planning difficult for exporters and importers alike.

5) Political Tensions and Domestic Blowback (India)

Trade policy rarely remains purely economic in nature.

In February 2026, the trade agreement began to be examined by domestic political forces in India, including during protests and parliamentary meetings. For instance, opposition MLAs in the state of Rajasthan wore T-shirts with the slogan that Prime Minister Modi’s government had “compromised” national interests in the trade agreement.

Another top leader of the opposition party accused the government of supporting large corporations at the cost of agriculture and workers.

Such internal discussions make it clear that the trade agreement has very strong political undertones that go beyond mere economics.5) Political Tensions and Domestic Blowback (India)

Trade policy rarely remains purely economic in nature.

In February 2026, the trade agreement began to be examined by domestic political forces in India, including during protests and parliamentary meetings. For instance, opposition MLAs in the state of Rajasthan wore T-shirts with the slogan that Prime Minister Modi’s government had “compromised” national interests in the trade agreement.

Another top leader of the opposition party accused the government of supporting large corporations at the cost of agriculture and workers.

Such internal discussions make it clear that the trade agreement has very strong political undertones that go beyond mere economics.

6) What Comes Next for India-US Trade

Negotiations are set to resume with new terms

While a Supreme Court decision has led to a pause in the finalization of the agreement, both parties have since reconsidered. However:

Trade negotiations are set to resume with new clarity on tariff terms and processes.

India’s Trade Minister, Piyush Goyal, has described recent talks with the U.S. Commerce Secretary as “fruitful” and a sign of a willingness to move forward with cooperation.

Future trade agreement

With ongoing trade talks, particularly with regards to retaliatory actions and legal basis, a more stable framework is expected, one that suits the legal systems of both countries, rather than mere executive decisions.

7) Myths, Misconceptions & What The Facts Say

Myth #1 — “Tariffs have been eliminated completely”

Reality: Tariffs are down from 50% to 18%, but the Supreme Court has struck down many of the former tariff instruments. A temporary 10-15% global tariff is in effect.

Myth #2 — “India pledged to stop all Russian oil purchases forever”

Reality: The U.S. asked for diversification of imports away from Russian oil. India indicated a possible shift towards Venezuelan oil imports as part of diversification, but no permanent ban was included in any formal treaty text.

Myth #3 — “India’s exports will collapse”

Reality: Exports such as textiles and garments are now recovering with tariff reductions and report improved margins.

Myth #4 — “The deal is final and set in stone”

Reality: The process is still in negotiation, and legal and political dynamics will continue to shape tariff application and trade flows.

8) Handy Timeline

Date	Key Event
Feb 2025	Early trade tensions begin with “reciprocal tariffs.”
Aug 2025	Tariffs reach ~50%.
Feb 2026	India–US interim deal announced (tariffs cut to 18%).
Feb 2026	U.S. Supreme Court strikes down tariff authority.
Feb 2026	Temporary 10% tariff on imports initiated.
Feb 2026	Trade talks resume with broad recalibration.

What This Means for Businesses 

Exporters: Monitor tariff structures carefully – even 10-15% tariffs make a difference.

Importers: Uncertainty in laws could impact refunds and cost structures.

Investors: Changes in policies could have an indirect impact on currency movements, FDI, and supply chain strategies.

Policymakers: Trade agreements in the future will require sensitive communication and economic data to support policy changes due to domestic political reactions.