Greed & Fear: Jefferies' Chris Wood sees India as a beneficiary of US-China tariff realignment. Here's why

In its latest “GREED & fear” report dated May 15, 2025, Jefferies' Chris Wood highlighted how the easing of trade tensions between the US and China could open up new opportunities for countries like India. While markets have been relieved by the recent pullback in tariff threats, the global supply chain realignment underway could give India a major boost, believes the global brokerage.

Key Turning Point in U.S.-China Talks

According to Jefferies, the turning point in the US-China trade talks came during a meeting between US Treasury Secretary Scott Bessent and China’s Finance Minister Lan Fo’an in early May. The meeting, held during the IMF-World Bank Spring Meeting, resulted in a sharp reduction in the proposed reciprocal tariffs. This came after Donald Trump's partial policy shift on April 9, which helped spark a 22 per cent rally in the S&P 500 from its April 7 low.

Jefferies noted that although the formal US tariff on Chinese imports remains at 40 per cent, 20 per cent of this is related to the fentanyl issue and 10 per cent dates back to the first Trump administration. The brokerage expects that a future trade deal may reduce much of this through a “purchase agreement,” similar to the Phase One trade deal of 2020.

Trump's Shift in Strategy

Jefferies pointed out that the Trump administration appears to be reconsidering its tough stance on China due to falling approval ratings—from 52.3 per cent in January to 45.9 per cent in early May. As a result, Jefferies expects any new tariffs will be capped at 10 per cent, far lower than the initially proposed 50 per cent during Trump’s “Liberation Day” remarks.

Even so, Jefferies warned that these levels would still make for the highest US tariff rates since 1943. The average effective US tariff rate has already reached 17.8 per cent. Moreover, 55 per cent of Texas businesses surveyed by the Dallas Fed said they would pass on higher tariff costs to customers within three months of implementation, potentially pushing inflation higher.

India's Growing Advantage

Jefferies emphasised that one of the unintended side effects of rising US-China trade tensions is the acceleration of supply chain diversification. This shift is benefiting India as multinational companies look beyond China. The report noted that even if Chinese firms like BYD or CATL were allowed to open plants in the US, national security concerns could limit such moves—further favouring India as an alternative hub.

India’s scale, improving infrastructure, and business-friendly reforms put it in a strong position to attract global investment and manufacturing. Jefferies sees India as a relatively stable emerging market and a major winner from the global rebalancing of trade.

Macro Relief and Market Optimism

The cooling of trade tensions has also changed expectations for US monetary policy. Jefferies reported that money markets are now pricing in only 49 basis points of Fed rate cuts in 2025, down from 102 basis points at the end of April. In April, U.S. job cuts dropped 62 per cent compared to March, helping ease fears of an immediate recession.

Still, Jefferies cautioned that any return to hardline tariff rhetoric—possibly influenced by policy advisors like Peter Navarro—could unsettle the markets. For now, however, the trend appears to be moving away from aggressive protectionism.

Global Trade Patterns Are Shifting

In the longer term, Jefferies noted that global trade flows are changing. China is increasingly settling its international trade in renminbi. In the first quarter of 2025, 27.8 per cent of China’s trade was settled in its local currency, up from 13.5 per cent in 2021. At the same time, the US share of global imports has dropped to 13.8 per cent from 19.4 per cent in 2001, signalling a decline in its dominance of global trade.

Jefferies also warned that the US dollar may be entering a long-term downtrend. Despite its recent strength after the tariff de-escalation, structural shifts in global capital flows may favour markets like Japan and India. The firm pointed out that MSCI USA is trading at 1.8 standard deviations above its long-term average P/E—one of the highest among global indices.

Jefferies concluded that while the worst of the U.S.-China tariff conflict may be behind us, the broader shift in trade and investment flows is just beginning. India, thanks to its strong fundamentals, policy direction, and strategic position, is emerging as a key beneficiary. As global manufacturers look to diversify and political relations evolve, India is well-placed to attract capital, technology, and supply chains previously dominated by China.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.