India, Malaysia, and the Philippines may emerge as relative beneficiaries of the United States’ new reciprocal tariffs, according to a report by Moody’s Ratings released on April 9, 2025. The report suggests that trade diversion from higher-tariff economies like China, Cambodia, and Vietnam could result in market share gains for economies facing moderate tariffs, such as India.

Moody’s observed that India, rated Baa3 (stable), along with Malaysia (A3 stable) and the Philippines (Baa2 stable), falls within the middle-band of US tariff rates, ranging from 10 percent to 30 percent. These nations are therefore better positioned to attract trade flows and potential investments, especially as businesses look to shift production away from high-tariff zones.

China Bears the Brunt of US Tariffs

The United States recently increased its tariffs on Chinese imports, in response to China’s 34 percent levy on US imports, bringing the effective tariff rate on Chinese goods to 104 percent. This aggressive trade move, announced by President Donald Trump on April 8, escalates the Sino-US trade tensions, raising serious concerns for regional and global economic stability.

According to Moody’s, China is expected to suffer the most, with Vietnam, Cambodia, Thailand, and Taiwan also facing elevated risks due to high direct exposure to the US market. India, on the other hand, has a more diversified export portfolio to the US and lower overall export exposure, making it relatively less vulnerable.

Tariff Impact and India’s Strategic Advantage

India faces a 26 percent tariff—moderate in comparison to Vietnam’s 46 percent and Cambodia’s 49 percent—which keeps it in a favorable band for companies looking to relocate supply chains. Moody’s believes that India's large domestic market, when paired with reasonably low operating costs, makes it an attractive destination for companies in the medium-to-long term.

Moreover, India’s export basket is diversified, unlike Pakistan and Bangladesh, whose exports are heavily reliant on specific sectors like textiles and food, which are highly sensitive to US demand fluctuations.

Moody’s highlights that India could attract foreign manufacturers eager to access both cost efficiency and market scale. However, this shift in production is expected to play out gradually over years, not overnight.

Economic Outlook and Central Bank Actions

Amid these global shifts, India’s macroeconomic management has become more critical. On April 9, the Reserve Bank of India (RBI) announced a 25 basis points rate cut, bringing the repo rate down to 6 percent. This was the second consecutive cut by the Monetary Policy Committee (MPC), reflecting a pro-growth monetary stance amid slowing external demand.

At the same time, the RBI revised India’s growth forecast for FY26, bringing it down from 6.7 percent to 6.5 percent. The inflation forecast was also reduced, from 4.2 percent to 4 percent, suggesting price stability is in sight, creating room for further monetary easing.

Moody’s supported this view, stating that central banks in Asia are likely to ease monetary policy faster to offset growth headwinds from the US-China tariff war. With inflation close to target in most countries, the risk of triggering new inflation via rate cuts appears minimal.

Risks from Fiscal Support and Trade Substitution

While monetary easing is likely to continue, Moody’s cautioned about potential fiscal implications. Governments attempting to mitigate the tariff impact through increased spending may delay or reverse fiscal consolidation, particularly after pandemic-related debt surges.

Trade policies may also shift, as countries begin to substitute US-bound exports with alternative markets. However, such redirection is not always seamless, especially in sectors with high price elasticity like textiles, food products, and wood-based goods.

India’s ability to withstand global trade disruptions hinges on its resilient domestic demand, stable credit ratings, and prudent regulatory stance by the RBI. The country’s lower reliance on the US market, combined with ongoing economic reforms, strengthens its position as a viable long-term production base.

Conclusion: India's Emerging Role in a Rebalancing Global Trade Landscape

As the world economy navigates rising protectionism and trade realignments, India may find itself better positioned than many of its regional peers. Its moderate exposure to US tariffs, strong internal market, and diversified exports give it a relative advantage in absorbing trade flows diverted from high-tariff nations like China and Vietnam.

However, the benefits will not be automatic. India will need to maintain fiscal prudence, continue monetary easing where appropriate, and strengthen supply chain infrastructure to capitalize on the shifting dynamics of global trade.

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