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After years of economic crossfire, the world's two largest economies— the United States and China—have called a temporary truce, hitting the brakes on their tariff war with a 90-day pause and sweeping duty reductions. This unexpected ceasefire, while offering short-term relief to jittery global markets, sends ripples across the international trade landscape—especially for countries like India that have been steadily carving out space as viable alternatives to China in global supply chains.
At the same time, India's high-stakes Free Trade Agreement (FTA) negotiations with the United Kingdom are nearing a pivotal moment, adding another layer of complexity and opportunity. As global trade realigns once again, this article examines the implications of these developments for India's export ambitions, supply chain strategy, and its long-term role in the new global economic order.
At present, Indian exports to the US are subject to a standard 10% duty, following a 90-day suspension of the 26% reciprocal tariff announced by President Trump. Initially, the US had imposed an extra 26% duty on Indian imports—significantly lower than the 145% tariff applied to Chinese goods. This differential had given India a competitive advantage, fueling hopes that it could attract manufacturing relocations away from China. However, with the recent narrowing of this tariff gap, Indian exporters may now face stiffer competition from Chinese counterparts.
India has been actively promoting itself as a viable alternative to China in global supply chains, leveraging its democratic framework, skilled workforce, and strategic location. The recent easing of US-China tariffs introduces new variables into this strategy.
The recent pause in US-China trade tensions presents several strategic opportunities for India. First, the temporary truce contributes to global supply chain stability, enabling multinational corporations to pursue long-term planning with greater confidence in their India-based operations. This period of reduced volatility enhances India's appeal as a destination for global investment.
Second, the US continues to impose higher tariffs on Chinese electric vehicles (EVs) and advanced battery technologies1, opening a window for India to attract investment in these high-growth sectors—particularly under the government's Production Linked Incentive (PLI) schemes. Additionally, as global companies seek to diversify their supply chains away from China, India stands out as a viable alternative, especially with the backing of targeted industrial policies and incentives.
Moreover, China's tariff concessions on US agricultural and medical products may prompt a redirection of its own exports to other markets. US agricultural exports, particularly soybeans, continue to face stiff competition from Brazil. Brazil remains the dominant supplier of soybeans to China, accounting for about 70% of China's imports, largely due to a record harvest and the absence of tariffs that still partially affect US soybeans2. This competitive edge suggests that China's demand for agricultural imports may increasingly be met by countries other than the US, potentially redirecting China's own agricultural exports to alternative markets. India can seize this opportunity by strengthening its agri-tech, pharmaceutical, and medical technology capabilities to increase its export share.
Lastly, this transitional phase allows India to reinforce regional trade partnerships and deepen its integration with neighboring economies and blocs, thereby solidifying its role in the evolving global supply chain ecosystem.
While the easing of US-China trade tensions offers potential gains for India, it also brings certain cautionary considerations. The tariff pause provides China with the opportunity to recalibrate and reinforce its domestic manufacturing and export capabilities, which could intensify competition for Indian producers in global markets. Furthermore, the relative thaw in trade relations might prompt some multinational corporations to reassess their expansion strategies. Instead of accelerating their shift to India, these companies may opt to maintain or even expand their presence in China, especially if the geopolitical environment remains stable.
Additionally, India must confront its own internal challenges—namely infrastructure limitations and policy bottlenecks. Without significant improvements in logistics, ease of doing business, and regulatory clarity, India may struggle to fully capitalise on the supply chain shifts and investment redirection currently underway.
India and the United Kingdom have recently concluded the FTA and are in advanced stages of finalising the deal, aiming to double bilateral trade over the next decade. Key aspects include:
To effectively position itself as a global trade and manufacturing hub in the wake of evolving geopolitical and trade dynamics, India must adopt a multi-pronged strategy. First and foremost, accelerating infrastructure development is critical. Significant investments are needed to upgrade transportation networks, logistics hubs, industrial corridors, and port infrastructure. This will not only enhance India's export competitiveness but also make it a more attractive destination for foreign direct investment (FDI).
Alongside physical infrastructure, diversifying export markets is essential to reduce over-reliance on a limited set of countries. India should actively explore trade opportunities in emerging markets across Africa, Latin America, and Southeast Asia while also deepening regional partnerships within Asia.
Simultaneously, India must focus on enhancing policy reforms to create a more conducive business environment. Streamlining regulatory frameworks, reducing compliance burdens, and offering targeted incentives will help bolster domestic manufacturing and improve the ease of doing business, especially for small and medium-sized enterprises (SMEs).
Lastly, the strategic use of Free Trade Agreements (FTAs) can be a powerful lever for trade expansion. The India-UK FTA, once finalised, should serve as a template for negotiating similar pacts with the European Union, Canada, and other key economies. However, these agreements must be carefully structured to ensure that domestic industries are protected while maximising market access. By aligning these initiatives under a coherent long-term trade policy, India can strengthen its global economic footprint and better compete with established manufacturing powerhouses like China.
Conclusion: Seizing the moment
The temporary easing of US-China trade tensions and the prospective India-UK Free Trade Agreement (FTA) present a unique window of opportunity for India to strengthen its position in the global trade ecosystem. By proactively addressing internal challenges and strategically engaging in international negotiations, India can capitalise on these developments to achieve long-term economic benefits.
Dipika Shetye, Manager, Tax, Grant Thornton Bharat, has also contributed to this article.
This article first appeared in the Taxmann on 3 June 2025.