The Indian Opposition is cacophonic about the trade deal and cut in tariffs announced by US President Donald Trump with Prime Minister Narendra Modi, asking if it gives away too much agriculture access or cuts back on Russian oil purchases, but they seem to have no real understanding of what might have swung the deal. Chances are it had everything to do with the dollar and nothing to do with Indian agriculture (or Russian oil) – no matter the posts on X by the US agriculture secretary and Trump himself.
The key offer from India might have been a ‘go slow’ on the one thing that gives America the maximum anxiety – a move away from the dollar and talk of a ‘Brics currency’. This is the one thing that makes the most sense if one tries to understand the timing of the announcement of this deal and possible reasons why Trump would have been convinced to cut tariffs for India.
President Donald Trump’s recent announcement of a trade deal with India, slashing US tariffs on Indian goods from 50 per cent to 18 per cent in exchange for India halting Russian oil purchases and boosting US imports, arrives amid escalating US anxieties over dollar dominance. This pact directly counters broader fears in Washington of de-dollarisation trends exemplified by Brics initiatives and the India-EU Free Trade Agreement (FTA), which integrates UPI with Europe’s TIPS for non-dollar payments.
The US dollar’s status as the world’s reserve currency underpins American economic power, facilitating low-cost borrowing and sanction enforcement through systems like Swift. Brics nations have accelerated efforts to reduce dollar reliance, promoting local currency settlements and exploring a common payment platform at their 2025 summit. Trump has repeatedly threatened 100 per cent tariffs on Brics countries pursuing a rival currency, viewing it as an existential threat to US financial leverage.
Brics, originally comprising Brazil, Russia, India, China, and South Africa since 2009, has undergone dramatic expansion in recent years, reflecting the Global South’s push for multipolar influence amid declining Western dominance. Following the 2023 Johannesburg Summit, six nations – Argentina (later declined), Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates – joined as full members effective January 2024, swelling the bloc to ten core economies representing over 45 per cent of the global population and 35 per cent of world GDP.
Indonesia formalised its full membership on January 6, 2025, marking the first Southeast Asian entry and bringing the total to eleven, with further ‘partner country’ status extended to thirteen others, including Algeria, Belarus, Bolivia, Cuba, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, Uzbekistan, and Vietnam, allowing graduated engagement without immediate full voting rights. This tiered model, solidified at the 2024 Kazan Summit, balances consensus amid rivalries like Saudi-Iran tensions or Egypt-Ethiopia disputes, while amplifying de-dollarisation via local-currency trade, the New Development Bank (NDB), and blockchain payment alternatives, prompting US tariff threats from President Trump.
India’s 2026 presidency, themed ‘Building a Resilient, Innovative, Cooperative, and Sustainable Future’, positions it to steer further enlargement, with frontrunners like Nigeria, Turkey, and Malaysia eyed for 2026 ascension, enhancing Brics’ control over half the world’s oil and strategic resources to challenge Swift and dollar hegemony.
India’s role amplifies these concerns. As a Brics heavyweight, New Delhi has cautiously supported bilateral trade in rupees and other currencies, especially with sanctioned Russia, prompting Trump to label such moves ‘anti-American’. While India denies pursuing full de-dollarisation, its diversification erodes dollar centrality in emerging markets.
Brics discussions of a ‘unit’ currency, potentially gold-backed, signal a pragmatic shift toward financial independence amid US sanctions on Russia and trade wars with China. Trump’s tariff threats explicitly demand commitments from Brics members, including India, to preserve dollar primacy. The group’s endorsement of interoperable systems and local-currency trade, evident in India-Russia oil deals settled in rupees, rings alarm bells in Washington, where the dollar share in global reserves has dipped to 59 per cent.
This pressure cooker intensified post-2024 Brics summit, where Brazil pushed for alternatives without a unified currency, yet blockchain-based cross-border tools gained traction. For the US, India’s Brics participation risks pulling a key Indo-Pacific partner into anti-dollar orbits, necessitating pre-emptive economic ties.
It is possible that India has offered to slow-track this process in order to reach a lower tariff agreement with America. This is the one very significant place where India has serious leverage that is easy even for Trump to understand.
The January 2026 India-EU FTA, dubbed the “mother of all deals”, covers two billion consumers and $27 trillion in GDP, slashing tariffs on 96.6 per cent of EU goods entering India and granting near-zero access for Indian exports. U.S. Treasury Secretary Scott Bessent called it “very disappointing”, criticising Europe’s engagement with India amid its Russian oil buys, which he sees as financing aggression against Ukraine.
Critically, the deal incorporates India’s UPI linked to Europe’s TIPS, enabling instant, low-cost cross-border payments in rupees and euros—bypassing dollar intermediaries. Announced by RBI in late 2025, this interlinkage supports G20 goals for efficient global payments but alarms Washington by creating dollar-free corridors for trade, remittances, and tourism between two major economies. US senators and media frame it as allies hedging against Trump’s tariffs, diluting America’s trade leverage.
Announced February 2, 2026, after a Trump-Modi call, the U.S.-India deal lowers reciprocal tariffs to 18 per cent, lifts penalties on Indian exports tied to Russian oil, and secures $500 billion in Indian purchases of US energy, tech, and agriculture. This follows months of 50 per cent U.S. tariffs crippling $36 billion in Indian exports, pressuring New Delhi amid stalled negotiations.
The timing, mere weeks after the India-EU FTA, reveals its dollar-defence motive. By rewarding India’s Russian oil pivot with market access, Trump reins in de-dollarisation risks, binding India to dollar-denominated US trade flows. It undercuts the EU pact’s momentum, positioning America as India’s preferred partner against Brics alternatives and ensuring strategic purchases reinforce dollar circuits.
This deal recalibrates Indo-Pacific dynamics. India’s EU diversification and UPI-TIPS bypass challenge US monopoly on payment rails, while Brics experiments test dollar resilience. Washington’s “warning bells”, from Bessent’s rebukes to tariff threats, reflect fears of a multipolar order where allies like the EU prioritise autonomy.
Trump’s pact locks India into ‘Buy American’ commitments, stabilising bilateral trade at higher dollar volumes and countering rupee internationalisation. Yet, it highlights tensions: U.S. policy divergence with Europe erodes unified fronts against Russia and China, accelerating non-dollar infrastructure.
Ultimately, the announcement weaves trade into dollar preservation. By alleviating tariff pain and securing loyalty, Trump neutralises India’s Brics-EU vectors, preserving US hegemony amid global finance’s quiet revolution. This is less bilateral bonhomie than calculated containment of de-dollarisation’s vanguard.
(Hindol Sengupta is a professor of international relations and director of the India Institute at the OP Jindal Global University. Views expressed are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)
End of Article
