On May 11, 2025, a significant development shook global trade strategies. The United States and China agreed to a 90-day reciprocal tariff pause, drastically reducing duties—from 145% to 30% on Chinese goods entering the US, and from 125% to 10% on American goods entering China. This move, aimed at thawing trade tensions between the world’s two largest economies, could reopen a staggering $660 billion in bilateral trade.

While the truce signals relief for global commerce, India could emerge as one of its unintended casualties, particularly in the context of the China Plus One strategy, a diversification movement that saw major economies shift supply chains from China to countries like India, Vietnam, and Mexico.

India’s Competitive Advantage Narrows

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), warned that companies which shifted production out of China might now return, eroding the diversification the tariff war initially created. He cautioned, “The China Plus One strategy could quietly fade.”

Prior to this development, India benefitted from tariff differentials, making it an attractive destination for manufacturing exports to the US. India was the sixth-largest trade gainer under Donald Trump’s first term (2017-2021), with exports to the US rising by $36.8 billion, particularly in electronics, pharmaceuticals, and engineering goods.

However, the tariff revision on Chinese goods dramatically closes that advantage. For instance, India’s electronics and auto parts, which once had pricing edges, now compete directly with cheaper Chinese imports re-entering the US market.

Key Sectors Remain Excluded—but Not Unaffected

While some sectors—steel, aluminium, and automobiles—remain outside the scope of the tariff pause, with 25% duties still applicable, this doesn’t offer complete relief for India. India continues to face the 10% baseline duty imposed by the US on all trading partners, and is subject to sectoral tariffs similar to other American partners.

Notably, the controversial 20% fentanyl-related tax on China is also excluded from the deal, further indicating a selective rollback of duties rather than full normalization.

Mixed Industry Reactions in India

Pankaj Chadha, chairman of EEPC India, believes that despite the setback, the US may still seek alternatives to China, especially in strategic sectors like auto components and steel-based products. He said, “India won’t get low-hanging fruits anymore but will benefit where we have real competitive advantage.”

However, deep manufacturing operations, which form the bedrock of industrial ecosystems, may slow down or return to China, Srivastava warned. He added that foreign investors may adopt a wait-and-watch approach until India can demonstrate a locked-in competitive edge.

Impact on India’s China Plus One Strategy

The China Plus One Strategy, especially prominent post-COVID-19, was designed to reduce global dependence on China for supply chains. Western economies began encouraging sourcing from countries like India, leading to a boom in smartphone assembly, electronics, chemicals, and pharmaceuticals.

According to an article co-authored by Chief Economic Adviser V Anantha Nageswaran in 2023, India’s chemical, pharma, and metals sectors saw immediate benefits from tight US-China trade dynamics. Meanwhile, electronics exports surged by 88% between FY14 and FY22—smartphones being the most exported item.

India’s appeal strengthened with Apple expanding iPhone assembly units in the country and talks with Tesla indicating a promising future. However, these gains now face a credibility test as the US-China economic thaw reshapes global sourcing decisions.

India-US Trade Deal: The Need for Speed

India is currently in talks with the US to finalize a Bilateral Trade Agreement (BTA). The initial version is expected to materialize by September or October, though a scaled-down version is being considered within 45 days.

The recent developments intensify urgency. Experts stress the importance of locking a favorable deal quickly to prevent being sidelined in the new trade landscape.

Srivastava pointed out that a smart trade deal could cap India’s duties at 10% and avoid escalation to Trump’s proposed 26% country-specific tariffs.

Roadblocks and Negotiation Challenges

Despite urgency, Chadha warns that US negotiators may now be emboldened by their deal with China, making concessions harder for India. He added, “It’s difficult to see a major breakthrough in just 45 days, but not impossible.”

Srivastava urged a firm negotiating stance, especially in sensitive sectors like automobiles and pharmaceuticals. India should resist any one-sided trade liberalization unless reciprocal benefits are guaranteed.

Conclusion: A Defining Moment for Indian Trade Policy

This US-China trade thaw, though globally stabilizing, puts India at a strategic crossroads. The China Plus One strategy, which has long served as a geopolitical and economic buffer, now risks losing momentum.

To stay in the game, India must act swiftly—whether it’s securing a meaningful trade pact with the US or strengthening domestic competitiveness. In a world where supply chains are increasingly political, India’s export growth depends not just on global policy shifts but on how quickly and effectively it responds to them.

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