On May 12, 2025, the US and China announced a tariff truce. This is a historic turning point in global trade. The temporary reduction of tariffs between these two powers may be a challenge for India, especially in the industries where it gained an advantage because of the previous trade tensions.
In recent years, India experienced a boom as worldwide companies and markets began desiring alternatives to Chinese products. Export growth for Indian exports, including electrical goods, pharmaceuticals, and equipment, corresponded with the increased cost of importing Chinese goods due to tariffs. The lifting of those tariffs now reintroduces some of those original pressures because Chinese products will become competitively priced, particularly in the US market.
This re-established competitive reality amongst international producers may affect Indian-based exporters, particularly those in high-value categories. There are already concerns from Indian pharmaceutical firms who had re-established their market position in the US and will likely find some pressure with the re-emergence of Chinese producers again. Similar concerns will presence themselves in the electrical goods, machinery, and other sectors, etc., where year-on-year demand drops off as they are undercut again with Chinese pricing.
In addition, the truce could dampen momentum for the "China Plus One" strategy, which has prompted companies to relocate manufacturing from China to places like India at least until China seems more stable, and companies might slow down or amend diversification deteriorations.
But if the truce is temporary, the effect may be mitigated. India still has the opportunity to enhance the manufacturing ecosystem—notably via the "Make in India" and production-linked incentive (PLI) initiatives. If India can harness resilient sectors and negotiate favorable trade agreements, the country can strategize out what the challenges may be and try to keep moving in an upward direction.
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