The recent agreement between the United States and China to significantly reduce tariffs has sparked both optimism and concern among Indian exporters. While the move is broadly seen as a positive step towards global trade stability, it also presents challenges and opportunities for India's export sector. The US has agreed to decrease its tariffs on Chinese goods from 145% to 30%, while China will lower its tariffs on US goods from 125% to 10%. These tariff reductions, implemented for an initial 90-day period, aim to de-escalate trade tensions and foster continued negotiations between the two economic giants.
Potential Challenges for Indian Exports
The reduction in tariffs between the US and China is likely to stimulate bilateral trade in key sectors such as electronics, machinery, and chemicals. This surge in US-China trade could intensify competition for Indian exporters in markets where India has made significant inroads, including Southeast Asia, Africa, and Latin America. With the narrowed tariff gap, companies that had considered shifting production to countries like Vietnam, India, or Mexico might now favor returning to China. This shift could potentially diminish the attractiveness of the "China Plus One" strategy, where companies diversify their manufacturing base beyond China.
Pankaj Chadha, Chairman of the Engineering Export Promotion Council, has cautioned that while India and China may now operate at nearly equal tariff levels, China's superior scale and efficiency could tip the balance in their favor. Ajay Srivastava, Founder of Global Trade Research Initiative (GTRI), noted that with the additional US tariff on India at 10% compared to 30% on China, the advantage previously held by India has been significantly eroded. He also suggests companies that had planned to shift production to places like Vietnam, India, or Mexico may return to China.
Opportunities for India
Despite the challenges, the US-China tariff cuts also present opportunities for India's export sector. S.C. Ralhan, President of the Federation of Indian Export Organisations (FIEO), suggests that India can leverage this situation to strengthen exports in sectors relatively insulated from US-China trade, such as pharmaceutical APIs, gems and jewelry, engineering goods, organic chemicals, and IT-enabled services. The temporary nature of the tariff cuts may also encourage companies to hedge against future volatility by expanding manufacturing in India under the Make in India and Production Linked Incentive (PLI) schemes, particularly in electronics, auto components, and textiles.
To mitigate potential risks and capitalize on emerging opportunities, experts recommend that India proactively engage with the US to secure and expand preferential trade access, emphasizing its role as a reliable alternate sourcing destination. Additionally, the Indian government should closely monitor imports from China to prevent any surge that could negatively impact domestic industries.
Strategic Recommendations for India
To navigate the evolving trade landscape, India needs a multi-pronged approach:
The US-China tariff agreement introduces a complex scenario for Indian exporters. While increased competition in certain sectors is a concern, India can leverage its strengths, focus on key sectors, and pursue strategic trade policies to navigate these challenges and unlock new opportunities for export growth.
