Trump slashes tariffs on India after Modi agrees to stop buying Russian oil

US President Donald Trump said he has reached a trade agreement with India that would include a cut in overall tariffs to 18 percent and see India stop buying Russian oil.

Trump 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. That additional tariff related to oil purchases will be dropped, and the original 25 percent tariff reduced to 18 percent.

"(India) agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela," Trump posted on Truth Social. "This will help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week!"

Trump has said he believes targeting Russia's oil revenue is the best way to get Moscow to end its nearly four-year war against Ukraine, a view that aligns with his love of tariffs, Associated Press reported.

India has been buying Russian oil at reduced prices, AP reported, as foreign sanctions on Moscow following the outbreak of Russia-Ukraine conflict in February 2022 have pushed down prices for its crude oil.

Indian Prime Minister Narendra Modi responded to Trump on X that he was "delighted" by the tariff reduction and that Trump's "leadership is vital for global peace, stability, and prosperity."

"I look forward to working closely with him to take our partnership to unprecedented heights," Modi said.

However, some have questioned whether Trump can secure binding trade agreements without congressional approval, as he has done multiple times since retaking office. Trump and his supporters argue Congress has ceded authority to the executive branch to secure such deals, CNBC reported.

Lori Mullins, director of operations at Rogers & Brown Custom Brokers, told CNBC her industry has learned not to react prematurely to Trump's public trade pronouncements.

"It's official once the Federal Register notice is posted with dates, times and applicable tariff codes," Mullins said.

Since being elected to his second term as president, Trump administration has imposed tariffs without going through Congress to achieve his economic and foreign policy aims.

After the US seized Venezuelan President Nicolas Maduro in January, Washington said it plans to control Venezuela's oil industry indefinitely, with an initial deal to sell 50 million barrels of Venezuelan crude, Reuters reported.

Trump previously suggested to India that it could shift some of its purchases from Russia to the South American country, Reuters reported.

India has been importing about 1.5 million barrels of Russian oil a day, according to global trade data provider Kpler, accounting for more than a third of India's overall imports.

Venezuelan oil is of the same quality as Russian oil — heavy, sour and perfect for making derivatives like fuel oil and diesel, which Indian refineries are set up to process, noted Rob Thummel, senior portfolio manager at Tortoise Capital.

However, Venezuela's oil infrastructure has not been well maintained and it could take tens of billions of dollars over a decade to return to its 3 million barrels a day of output from a couple of decades ago, CNN reported.

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

Trump also said that India would start to reduce its import taxes on US goods to zero and buy $500 billion worth of American products, AP reported.

The top US imports from India last year were computers and electronics, pharmaceuticals, apparel and chemicals. Jewelry prices in the US have risen recently in part because of tariffs on India. Meanwhile, India's top imports from the US were oil, gas, airplanes and airplane parts, CNN reported.