US-China trade truce brings relief, but India's tariff advantage may narrow

Weekend talks at Geneva between top officials of the two countries saw the US agree to cut tariffs on Chinese goods from 145% to 30%. Likewise, China agreed to lower tariffs on US imports from 125% to 10%, according to a joint statement issued by them on Monday. However, key sectors such as steel, aluminum, and automobiles are not covered under this arrangement, with 25% tariffs remaining in effect for all US trade partners.

Further, the rolled-back tariffs are effective for 90 days starting Wednesday, a temporary window that aims to ease trade tensions and allow for further negotiations towards a more lasting agreement. 

A Reuters report on the development quoted Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, saying: “This is better than I expected. I thought tariffs would be cut to somewhere around 50%...Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term."

Also read | Why the India-UK FTA has spooked medical device manufacturers. Hint: China

Ajay Srivastava, co-founder of New Delhi-based trade think-tank Global Trade Research Initiative (GTRI), said this effectively reopens the $660-billion US-China trade corridor and brings relief for strained global supply chains. “By rolling back some of the steepest tariffs, it allows trade to resume more freely between the two countries," he said.

However, given the transient nature of the truce, experts are waiting for details to find cues for what it could mean for India, even while initial feedback throws up mixed views on the unravelling of the China+1 strategy that India was banking on. 

“As the tariff gap narrows, companies that had moved production to countries like Vietnam, India, or Mexico might shift operations back to China," said Srivastava. “The China+1 strategy—designed to reduce reliance on China—could quietly unravel. Ironically, the agreement risks reversing the very supply chain diversification the tariff war was meant to encourage."

Similar noises echoed from stakeholders of India’s electronics sector. Ashok Chandak, president of industry body India Electronics and Semiconductor Association (Iesa), said the US’s deals with the UK and China signal that the country “is willing to negotiate, and do so generously as long as the overall trade tariffs suit them". However, he added that the deals suggest “it is not necessary that India will retain its position as a geography with favourable import duties in the US—among the world’s top consumer electronics markets".

Read this | Foreign investors are seeking alternatives to China. Here’s how India plans to pounce.

“This means that the euphoria that India had at the onset of US President Trump’s trade tariffs about it being a favourable geography could very well turn out to be misplaced," Chandak said. 

At the same time, Chandak believes there is no reason to worry, since supply chain diversification is a reality for all major companies worldwide, “and India, with its central government-driven push, will almost certainly get a decent share of business moving away from China".

“The US-China deal may ease global trade tensions in the short term. But for India, the gap in tariff advantage over China on supply to the US has narrowed. To stay competitive, India must now focus on strengthening its position in global supply chains," said Saurabh Agarwal, Tax partner at audit and consulting firm EY.

Queries sent to the ministry of commerce remained unanswered.

Meanwhile, a textile industry expert has hailed the development, calling it a step toward easing global trade tensions and stabilising markets.

“By lowering tariffs for 90 days, both countries are trying to keep up consumption momentum—especially in the US—which is crucial for global trade flows," said Prabhu Dhamodharan, convenor, Indian Texpreneurs Federation (ITF), a textile entrepreneurs body based out of Coimbatore, adding that the truce comes at an opportune time for India considering the ongoing trade deal negotiations with the US. 

And this | Apple bets on India to counter US-China trade spat, eyes 50 mn iPhones by 2028

“If we manage to secure a preferential tariff rate—potentially 10% or even zero—it would sharply improve our competitiveness, particularly in textiles and apparel," said Dhamodharan. “It places India in a favourable position compared to China, just as global buyers are looking to diversify their sourcing base." 

But there are contrarian voices, too. “If the US significantly lowers tariffs on Chinese goods that overlap with India’s export interests, such as clothing, it would reduce the chances of our exporters gaining ground in the American market," said Abhijit Das, an international trade expert and former head of the Centre for WTO Studies, New Delhi.

On medical devices, Rajiv Nath, forum coordinator at Association of Indian Medical Device Industry (AiMeD), said at 30% tariffs levied on China compared to 10% on India, the differential serves as motivation for companies “to move manufacturing from China to India to make in India and ship to the US". 

“The potential cost savings from manufacturing in India, including lower labour costs, raw materials, and other expenses, will need to be weighed against the costs of relocation," said Nath. “The complexity of the supply chain, including sourcing of raw materials and components, will also impact the decision to shift manufacturing from China to India." 

Also read | Traders, economists heave a sigh of relief as India-Pakistan border tensions recede, ceasefire brings hope

Uday Bhaskar, former director-general of Pharmexcil, said China is the largest manufacturer of APIs, key starting materials (KSMs) and basic chemicals, and is a big relief for US pharma sector in light of high tariffs. “However, it is not going to make any significant difference in the Indian scenario. When compared with 125%, the revised 35% tariffs are good," he added.

According to Ajay Sahai, director general & CEO, Federation of Indian Export Organisations (FIEO), India can leverage the truce to strengthen exports in sectors that remain relatively insulated from US-China trade, such as pharmaceutical APIs, gems and jewellery, engineering goods, smartphones, organic chemicals and IT-enabled services, among others.

“India must proactively engage with the US to secure and expand its preferential trade access, emphasizing its role as a reliable alternate sourcing destination," said Sahai. “The temporary nature of the tariff cuts may lead companies to hedge against future volatility by expanding manufacturing in India under the Make in India and PLI schemes."

Big but temporary

Meanwhile, the US and China have also agreed to take strong steps to stop the flow of fentanyl and its chemical ingredients from China to illegal drug makers in North America. Fentanyl is a powerful synthetic opioid used medically to treat severe pain, especially after surgery or in advanced cancer cases.

A report in Bloomberg quoted US treasury secretary Scott Bessent saying that both sides agreed that they don’t want to decouple. “We had a very robust and productive discussion on steps forward on fentanyl", Bessent said, adding that talks might lead to China buying more American-made products.

“We would like to see China open to more US goods," Bessent said. “We expect that as the negotiations proceed, that there will also be the possibility of purchase agreements to pull what is our largest bilateral trade deficit into balance."

The Bloomberg report further quoted Bessent saying that the tariff reductions don’t apply to sectoral duties imposed on all US trading partners, and the tariffs applied on China during the first Trump administration remain in place. Asked what would happen at the end of 90 days to avoid tariffs ratcheting back up, Bessent indicated there’s a chance to extend the truce further.

Read this | India-UK free trade agreement to take effect more than three months later, UK’s carbon tax deferred

China also said it would suspend or cancel its non-tariff countermeasures imposed on the US since April 2, Bloomberg reported, adding that’s an apparent reference to China’s addition on April 4 of seven rare earths to its export control list. Securing the removal of those restrictions was a priority for Washington as a range of industries faced disruption.

To be sure, China controls around 70% of global rare earth production and holds over 36 million tonnes in reserves, compared to the US’s 2.3 million tonnes and India’s 6.9 million tonnes, according to the US Geological Survey data of 2024. China also dominates over 80% of global processing capacity for rare earth elements, which are vital for clean energy, electronics, and defense industries.

Srikanth Kondapalli, Professor of Chinese studies at Jawaharlal Nehru University, pointed out that the deal is only for 90 days and China will take some time to arrive at a conclusion. 

“There were no details on the trade deal except for decreasing everything to 10%," said Kondapalli. “However, there was no discussion about the tariffs imposed during the previous US administration. The major issue for the US is the $1.2 trillion trade deficit and they are exploring ways to reduce the trade deficit. So, the Chinese will have to act on this."

Inputs from Shouvik Das, Priyanka Sharma, agencies

And read | Free trade pact with EU possible by year-end amid shared urgency: Sitharaman