Advantage or disadvantage? How the US-China trade deal will likely impact India - explained

The US and China have announced a trade agreement which for the time being reduces the tariffs that each country imposes on the other by 115%. The agreement is to temporarily lower tariffs – the US moving from 145% to 30% and China reciprocally from 125% to 10%.

But, this trade agreement between the countries led by Donald Trump and Xi Jinping has created additional challenges for Indian negotiators preparing for their Washington DC visit to discuss the proposed India-US trade deal.

The 90-day understanding between the world's largest trading partners, involving a tariff reduction of 115 percentage points, facilitates Chinese goods' entry into markets.

This development is likely to reduce the demand for Indian products, as supply chains resume operations for the 90-day period. Additionally, there might be accelerated shipments in anticipation of the truce's possible non-extension.

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India, seen by the US as a country that imposes high tariffs, had been slapped with 26% duties on April 2 by Donald Trump along with a host of other countries. Since then the US President has announced a 90-day pause allowing for negotiations.

The US-China declaration intensifies the urgency for New Delhi to conclude an agreement promptly, considering that the 90-day suspension of reciprocal tariffs for nations, excluding China, concludes on July 9. The UK has already accepted the US agreement terms, whilst South Korea, Israel, and various other nations are engaged in negotiations.

Indian government representatives are aiming for an "early deal" whilst ensuring New Delhi's priorities are addressed, despite substantial pressure from the Trump administration to advance its requirements, including reduced tariffs on automobiles, whiskey, and agricultural products, which constitute primary US demands.

The recent development between the US and China certainly warrants a closer look, particularly through the lens of its implications for India.

Also Read | India proposes cutting tariff gap with US to less than 4% from 13% to clinch trade deal with Donald Trump: Report

Make-in-India Smartphones

The temporary suspension of reciprocal tariffs on China by the United States for 90 days is unlikely to affect India's growing mobile phone manufacturing sector and component production, as the country maintains a significant 20% tariff advantage that presents substantial business opportunities, according to industry leaders and analysts.

India continues to benefit from the current geopolitical climate as global companies seek to diversify their supply chains beyond China, positioning India as a viable alternative manufacturing destination, they added. Apple is already actively looking to assemble more iPhones in India in the coming years.

"Since smartphones, laptops and tablets were excluded from the reciprocal tariffs, there won't be any significant change for India's manufacturing ecosystem as of now," Pankaj Mohindroo, chairman of the India Cellular and Electronics Association, told ET.

Also Read | Dealing with Trump’s tariffs: Apple exports 97.6% of iPhones to US from India to preempt higher tariffs on imports from China

Exports of smartphones, laptops and tablets from India to the US currently enjoy duty-free status, maintaining an advantage over Chinese exports which are subject to a 20% duty. Following the recent US-China agreement, mutual tariffs have decreased from 125% to 10%. However, the 25% tariff implemented during Trump's presidency in 2018 on various imports and the 20% duty on fentanyl remain unchanged.

India maintains a 20% tariff advantage over China for US exports, despite the recent US-China accord in Geneva. This advantage is guaranteed only until July 9, as Washington has temporarily suspended reciprocal tariffs on India until this date. Should India and the US fail to reach terms, India could face 26% tariffs, potentially placing it at a competitive disadvantage.

However, this scenario appears unlikely, as both nations are actively negotiating a bilateral trade agreement, and business sectors remain optimistic about achieving a favourable resolution.

US-China trade deal: Advantage or disadvantage India?

India will maintain its competitive advantage over regional counterparts, particularly Vietnam, which is subject to higher "reciprocal tariffs". Nevertheless, the initiative to swiftly adjust or transfer manufacturing operations from China will experience a deceleration.

“The agreement to temporarily lower tariffs – the US moving from 145% to 30% and China reciprocally from 125% to 10% – undeniably injects a degree of near-term optimism into the global trade landscape,” says Saurabh Agarwal, Tax Partner, EY.

However, he notes that for India, the narrowing of the tariff differential on exports to the US is a crucial point.

“The previous advantage we held over China in this regard has indeed diminished. Yet, this isn't a moment for despondency, but rather an opportunity to strategically recalibrate,” Saurabh Agarwal tells TOI.

In a scenario where India proactively negotiates a favorable bilateral trade agreement with the US, capping our tariffs even at current levels, presents a compelling pathway. A sustained 20% tariff arbitrage over China would be a significant lever, amplifying the inherent strengths India already possesses, he explains.

Also Read | Apple tempted by India! In shift away from China, 70-80 million iPhones to be made in India soon amid Trump tariff tensions

Consider the potent combination of factors at play: the robust Production Linked Incentive schemes rolled out by the government, our demographic dividend manifested in a large and skilled workforce, and the undeniable economies of scale that our burgeoning manufacturing sector can deliver. These are not mere advantages; they are fundamental pillars upon which India can build its position as a reliable and competitive supply chain partner to the world, he opines.

Furthermore, Saurabh notes that the sheer scale of India's domestic consumer market acts as a vital buffer. “In an increasingly volatile global environment, this vast internal demand provides a degree of resilience against external shocks and fluctuations,” he believes.

“Therefore, while the US-China trade detente necessitates a reassessment of our strategies, it simultaneously underscores the importance of decisive action. By securing advantageous trade agreements and leveraging our intrinsic strengths, India stands poised to not only navigate this evolving landscape but to emerge as a more significant and influential player in the global supply chain. The time for proactive engagement and strategic negotiations is now,” he concludes.



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