The temporary easing of tariffs between the United States and China has drawn a mixed response from Indian trade experts, who warn that the development may either open new export opportunities for India or undermine recent gains in foreign investment and global supply chain diversification.

On May 12, 2025, following high-level negotiations in Geneva, Washington and Beijing issued a joint statement declaring that both countries would significantly roll back tariffs imposed during their months-long trade escalation. This step, they said, was aimed at stabilising bilateral trade and building trust toward a more lasting resolution.

Tariff Rollback to Last 90 Days

Under the agreement, the U.S. will reduce tariffs on Chinese goods from 145% to 30%, while China will lower duties on U.S. products from 125% to 10%. These revised tariffs will be effective for 90 days, starting May 14, 2025. The two nations have agreed to continue discussions during this period.

The announcement marks a temporary de-escalation in what had become a rapidly worsening trade conflict, disrupting global markets and rattling supply chains.

“This relaxation will likely result in a surge of U.S.-China bilateral trade, particularly in high-value segments like electronics, machinery, and chemicals,” said S.C. Ralhan, President of the Federation of Indian Export Organisations (FIEO).

However, Mr. Ralhan also believes that India could benefit from the development if it plays its cards right.

“India can leverage this shift to strengthen exports in sectors that remain relatively insulated from U.S.-China trade, such as pharmaceutical APIs, gems and jewellery, engineering goods, organic chemicals, and IT-enabled services,” he added.

Experts Warn of Reverse Investment Shift

While some trade experts are optimistic, others are less sanguine. Ajay Srivastava, former Director General of Foreign Trade, said the deal could weaken the 'China Plus One' strategy, which had earlier encouraged businesses to diversify their manufacturing bases away from China due to tariff concerns.

“As the tariff gap narrows, companies that had shifted production to places like Vietnam, India, or Mexico may return to China,” he warned.

“Ironically, this deal could undo the very diversification the tariff war aimed to spark. If the U.S. and China are back to trading easily, the incentive to stay diversified may drop significantly.”

This poses a potential setback for India's manufacturing and investment climate, which has in recent years benefited from the global drive to reduce dependency on China. Lower tariffs could reinforce China's position as the world’s manufacturing hub, pulling capital back into the Chinese economy.

No Resolution on Trade Imbalance

Critics also note that the agreement fails to address core issues such as the massive trade imbalance between China and the U.S.—a key complaint raised during Donald Trump’s earlier presidency and a driving force behind the original imposition of tariffs.

“This is a ceasefire, not a solution,” Srivastava said. “It doesn’t resolve the structural issues.”

The current trade imbalance, which heavily favours China, has persisted despite years of punitive tariffs and rounds of negotiations. The rollback, in this sense, may represent a temporary reprieve rather than long-term stability.

Potential for Reduced Dumping Pressure

Despite concerns, some analysts see a silver lining in reduced tariff aggression. By easing tensions, the U.S. and China may lower the dumping pressure that third-party countries like India and Vietnam have faced.

“Dumping of Chinese goods in India has been a concern,” said a trade economist. “A renewed focus by China on U.S. exports may reduce the overflow of cheap Chinese products into India.”

This could particularly help Indian manufacturers and MSMEs, who have often found themselves unable to compete with below-cost imports from China.

Sectors to Watch

If India is to take advantage of this shifting trade dynamic, it will need to double down on its strength areas. Experts identify five main sectors that could see benefits:

1. Pharmaceutical APIs – India is a global hub for active pharmaceutical ingredients, with consistent U.S. demand.

2. Gems and Jewellery – A key Indian export segment, especially to U.S. buyers.

3. Engineering Goods – Including machine tools and industrial components.

4. Organic Chemicals – Where India has competitive pricing and quality.

5. IT-enabled Services – Likely to remain unaffected and may grow if trade stability returns.

These sectors are considered less vulnerable to fluctuations in U.S.-China trade and may experience greater demand or investment if Indian exporters are able to act swiftly.

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