Tariffs cut as US, India ink deal

The United States announced a trade deal with India on Monday that slashes tariffs on Indian goods to 18 percent from 50 percent in exchange for India halting Russian oil purchases and lowering trade barriers.

The deal was announced by US President Donald Trump following a call with Indian Prime Minister Narendra Modi. Trump said India would now buy oil from the US and potentially Venezuela.

Washington had initially imposed a 25 percent tariff on Indian goods in June, and then in August added an additional 25 percent because of India's purchases of Russian oil, for an effective rate of 50 percent.

Under the announced deal, India would reduce import taxes on US goods to zero and purchase $500 billion worth of US products.

Modi said he was "delighted" by the tariff reduction, but mentioned no details of the deal, including whether India would stop buying Russian oil as claimed by the US side.

After the US forcibly seized Venezuelan President Nicolas Maduro last month, Washington said it intends to control Venezuela's oil industry indefinitely, beginning with a deal to sell 50 million barrels of crude.

India currently imports about 1.5 million barrels of Russian oil per day, more than one-third of its total imports, according to global trade data provider Kpler.

"Fully replacing Russian oil with oil from Venezuela or the US will take significant investment," said Rob Haworth, senior investment strategy director at US Bank Asset Management.

Analysts said the US-India deal is likely to ease tensions between the two countries, enabling Indian exports to regain their competitiveness in the US market.

Pushan Dutt, a professor of economics and political science at INSEAD Asia Campus in Singapore, said it is a "welcome" move for the two countries to reach a trade deal.

"The announcement can bring India and the US back into economic and geopolitical alignment," Dutt said.

Dibyendu Maiti, a professor at the Delhi School of Economics in New Delhi, said restrictions on agricultural and dairy products have been eased following pressure from the US.

Qian Feng, director of the research department at Tsinghua University's National Strategy Institute, said reaching a trade agreement with the US offers India both opportunities and challenges.

"In the short term, Indian exports to the US, including computers and other electronic products, pharmaceuticals, apparel and chemicals, are likely to become more competitive," Qian said. "This would enable Indian companies to regain market share in the US, stimulate export growth and support a faster pace of economic recovery."

Meanwhile, India's decision to scale back purchases of Russian crude oil in exchange for lower US tariffs will likely create a range of long-term challenges, he said. The country's energy import costs could rise significantly, potentially adding billions of dollars to its annual fuel bill and putting upward pressure on inflation and economic growth, he added.

Such a shift could expose India to compliance risks and complicate existing agreements with Russian energy companies, given Russia's historically large share of India's crude imports, Qian said. "Therefore, a complete halt to India's crude oil imports from Russia would be difficult to achieve, both economically and geopolitically."

It remains uncertain whether the trade agreement will ultimately be finalized, he said.

A US Trade Representative official, who was granted anonymity to provide details, warned that the president of the US "can always put Russia oil tariff back on if they go back to buying Russian oil", Politico reported.

Qian said the US aims to use India as a counterbalance to Russia, a position that does not fully align with India's own stance. As a result, he said, substantial uncertainties remain regarding the alignment of their core interests.

"The announcements by the two leaders do not indicate that India and the US have resolved all their differences. Rather, they resemble a temporary trade truce than a definitive reconciliation between the two sides," he said.

Aparajit Chakraborty in New Delhi and agencies contributed to this story.

Contact the writers at liujianqiao@chinadaily.com.cn