100% U.S. tariff threat: Can India’s new trade deals reduce its dependence on America?
A newly enacted US law authorises tariffs of up to 100% on goods from countries that remain large buyers of Russian oil and gas, placing India — among the largest importers of Russian crude — at risk
India has been signing and fast-tracking multiple trade agreements (with New Zealand, and ongoing negotiations with Canada, among others) at an accelerated pace through 2026
This follows an earlier bilateral trade arrangement in February 2026 that had already brought US tariffs on most Indian goods down from a peak of 50% to lower levels
The developments raise the question of whether new export markets opened by India's expanding FTA network can meaningfully offset dependence on the US market
Secondary Sanctions and Extraterritorial Tariff Legislation
The US law at the centre of this threat — commonly referenced as the Sanctioning Russia and Iran Act of 2026 — allows the US President to impose tariffs of up to 100% on the largest importers of Russian crude oil, the largest importers of Russian natural gas, and countries found to be facilitating evasion of Russia-related sanctions. This is a form of "secondary sanction" — a measure that penalises third countries for their dealings with a sanctioned state, rather than sanctioning the target state directly.
Key Details
- Signed into US law on September 18, 2026, after passing the House (April 27, 2026) and Senate (August 7, 2026)
- Targets the five largest importers of Russian crude, five largest importers of Russian gas, and sanctions-evasion facilitators
- Contains a carve-out for countries importing less than 15% of their natural gas needs from Russia while taking demonstrable steps to reduce imports
- China and India are identified as the largest buyers of Russian crude oil, making both primary targets; the law authorises but does not automatically trigger the 100% tariff — it depends on subsequent presidential determination
- Distinct from primary sanctions (direct restrictions on the target country) — secondary sanctions instead threaten a third country's own market access to compel behavioural change, a tool the US has also used against countries trading with Iran and North Korea
India's continued Russian crude purchases (roughly half of India's crude imports during parts of 2026) are the direct trigger for this tariff exposure, distinct from the earlier February 2026 bilateral tariff deal that addressed general trade tariffs.
GATT Article XXIV and India's FTA-Led Diversification Strategy
Facing concentrated exposure to a single market, India has accelerated conclusion of Free Trade Agreements under the WTO's Article XXIV exception to the MFN principle, spreading market access across multiple destinations rather than relying on unilateral US market access. This is a standard trade-policy response to bilateral tariff risk: diversify the export basket geographically so that punitive action by one partner has a smaller aggregate effect.
Key Details
- India-UK Comprehensive Economic and Trade Agreement: entered into force July 15, 2026, with 99% of Indian goods entering the UK and 90% of UK goods entering India becoming duty-free or reduced
- India-EU FTA: negotiations concluded in principle around January 2026, covering roughly 99% of India's export trade lines
- India-EFTA TEPA: in force since October 1, 2025, eliminating tariffs on 92.2% of product categories covering 99.6% of Indian exports
- India-New Zealand FTA: ratified September 2026, entering into force October 20, 2026 (see companion bridge article)
- India-Canada CEPA: fifth negotiating round scheduled to begin October 5, 2026, targeting conclusion by end of 2026
Each of these agreements is a hedge against exactly the kind of unilateral, sanctions-linked tariff risk the new US law represents — the more diversified India's FTA-covered export destinations, the smaller the share of trade any single partner's punitive tariff can affect.
India's Export Concentration in the US Market
Before assessing whether diversification can offset US tariff risk, the scale of dependence matters. The US has been India's single largest export destination, but the concentration varies sharply by sector — goods trade is less concentrated than IT/software services exports.
Key Details
- The US accounts for roughly a fifth of India's total merchandise exports
- Software/IT services exports are far more concentrated — the US share of India's software exports rose to about 54.1% in FY26
- Government/ICRIER assessments suggest only around 7.38% of India's total exports are materially affected by the tariff measures currently in force, limiting the aggregate macroeconomic impact even though sector-specific pain (e.g., textiles, gems and jewellery, shrimp) is significant
- US tariffs on Indian goods peaked at 50% in 2025 before a February 2026 bilateral deal brought the general rate down; the new 100% threat under the Russia-sanctions law is separate and additional to that baseline
The debate over whether new FTAs can meaningfully reduce dependence hinges on this concentration data — diversifying into the UK, EU, EFTA, NZ, and (prospectively) Canada helps most where export baskets overlap with what the US currently absorbs, particularly labour-intensive manufactured goods.
- Russia-sanctions tariff law signed: September 18, 2026; authorises up to 100% tariffs on largest Russian oil/gas importers
- Earlier 2026 India-US tariff deal: brought rates down from a 50% peak; average monthly Indian exports to the US had fallen to $6.5 billion (Sept 2025–Feb 2026) from $8.1 billion in the preceding six months
- US share of India's total exports: approximately 20%; US share of India's software exports: approximately 54.1% (FY26)
- Share of India's total exports materially affected by current US tariff measures: approximately 7.38% (per ICRIER/government assessment)
- Recent/upcoming Indian FTAs reducing single-market exposure: UK CETA (in force July 15, 2026), EU FTA (concluded in principle, Jan 2026), EFTA TEPA (in force Oct 1, 2025), New Zealand FTA (in force Oct 20, 2026), Canada CEPA (fifth round from Oct 5, 2026, target conclusion end-2026)