On May 12, after two days of talks in Geneva, the United States and China announced a temporary trade truce. For 90 days, starting May 14, both countries will sharply reduce tariffs on most goods. U.S. tariffs on Chinese imports will drop from a staggering 145% to 30%, while China will cut its own duties on American products from 125% to 10%.
Key sectors—steel, aluminum, and automobiles—are excluded, with 25% tariffs still in place for all U.S. partners.
This deal isn’t a fresh start—it’s a step back. President Trump, during his first term began tariff war with China in March 2018 promising to fix the trade deficit, bring back manufacturing, and slow China’s industrial rise.
None of that happened. Instead, tariffs hurt American businesses, pushed up prices for consumers, disrupted global supply chains, and widened the U.S. trade deficit.
The same pattern repeated this year. Starting in January 2025, Trump hit Chinese goods with tariffs as high as 245%. Now, under economic pressure, he’s rolling them back.
What this new deal does achieve is reopening the $660 billion U.S.–China trade pipeline and easing pressure on global supply chains. It lifts some of the most punishing tariffs and allows trade to flow more freely again.
Impact on India
But there’s a catch. As the tariff gap narrows, companies that had shifted production to places like Vietnam, India, or Mexico may return to China. The “China Plus One” strategy could quietly fade. Ironically, this deal could undo the very diversification the tariff war aimed to spark.
And nothing else has changed. There’s no plan to fix the core trade imbalance, and no clear path to rebuild U.S. manufacturing.
Even though U.S. tariffs on Indian goods remain at 10%, well below the 30% still imposed on Chinese imports, the massive tariff gap that once favored India is shrinking fast. Just months ago, the U.S. imposed duties of up to 145% on Chinese goods—giving India a major edge in attracting companies looking to relocate. Now, that edge has narrowed dramatically, with the U.S. and China easing tensions and bringing tariffs closer to parity.
For global investors, the message is clear: Washington is re-engaging with Beijing.
This shift risks undermining the “China Plus One” strategy that saw firms move manufacturing to India, Vietnam, and Mexico.
While low-investment assembly operations may linger in India for now, deeper manufacturing—the kind that builds real industrial ecosystems—may stall or even return to China. Investors are watching the U.S. tilt, and many will hesitate to commit unless India can lock in a competitive advantage.
A smart trade deal with the U.S. could help preserve India’s 10% tariff access and prevent any hike to the proposed 26% under Trump’s new country-specific duties.
But beyond trade policy, India must urgently cut production costs, overhaul logistics, and improve regulatory predictability. And as it negotiates future FTAs, India must resist pressure to open up sensitive sectors like automobiles and pharmaceuticals without meaningful reciprocal gains.
Ajay Srivastava is head of the Global Trade Research Institute
