Introduction
After years of economic brinkmanship, the US and China have agreed to a 90-day suspension of additional tariffs, signaling the first serious step toward de-escalating a trade war that has distorted global markets and eroded trust in the rules-based trading order.
While this is not a final resolution, it’s a critical economic breather for two superpowers under increasing pressure from their slowing economies. But what lies ahead for global markets, and more importantly, how does India position itself in a world where giants pause rather than pull out?
Key Deal Terms at a Glance
- Tariffs on ~$360 billion of goods will be suspended for 90 days.
- Talks to resume on contentious issues like IP theft, tech transfers, and state subsidies.
- Reciprocal tariff negotiations will begin under mutual audit mechanisms.
“We’re committed to creating a level playing field, but not at the cost of domestic manufacturing,” said US Treasury Secretary Scott Bessent during the announcement (Times of India, May 12, 2025).
Tariff History: A Recap
Year | Total US Tariffs on China | Chinese Tariffs on US Goods |
2018 | $50 billion | $34 billion |
2019 | $360 billion | $110 billion |
2023 | $280 billion | $120 billion |
2025 | Tariffs paused | Tariffs paused |
What Prompted the US-China Tariff Truce?
The temporary ceasefire is driven not by diplomacy but by necessity. Both economies are grappling with internal slowdowns that retaliatory tariffs have amplified.
In China, falling exports (down 5.3% YoY in April 2025) and a declining manufacturing PMI (49.2) suggest that factories run below capacity. The US, meanwhile, is facing sticky inflation (Core PCE at 2.8%) and flatlining industrial output, with a Q1 GDP growth of just 1.6%. Continued tariffs threatened to accelerate this deceleration.
The Geneva meeting, hosted under WTO oversight, was a rare admission by both sides that the current trajectory could lead to mutual economic damage, perhaps even recession. The pressure was also geopolitical for Beijing, with supply chains increasingly rerouting through Southeast Asia. With an election year ahead, containing cost-of-living issues became a political imperative for Washington.
What the Deal Means for the US Economy
For the US, this 90-day truce is a calculated economic pivot. The trade war may have reduced the trade deficit with China (from $418 billion in 2018 to $279 billion in 2023), but it has also inflated costs for American businesses and consumers. An estimate by the Federal Reserve suggests that tariffs raised consumer prices by an average of 0.5 percentage points between 2019 and 2023.
Pausing tariffs now helps ease price pressures on imports like machinery, electronics, and furniture, categories where China still dominates US sourcing. It also gives breathing room to small businesses that rely on Chinese components but have struggled to find alternative suppliers.
The US wants to reassert its tech dominance in terms of investment, especially in semiconductors and clean energy. A prolonged tariff war risked triggering capital flight or foreign backlash just as the US tries to onshore key manufacturing industries. Hence, the truce also buys time for domestic capacity-building under the CHIPS and IRA Acts.
What the Deal Means for China
For China, the deal is both a lifeline and a warning. The export engine that powered three decades of double-digit growth is sputtering. Exports to the US dropped nearly 14% in 2024, with global firms shifting assembly to Vietnam, Mexico, and India. The real risk for Beijing is tariffs and the erosion of trust in Chinese supply reliability.
The truce enables China to restore momentum in industrial production and protect jobs in export-heavy provinces like Guangdong and Zhejiang. It also offers the Communist Party breathing space ahead of the July 2025 Party Congress, where economic performance will heavily influence leadership credibility.
Yet, this is not a return to normal. The US insists on talks over IP theft, forced tech transfers, and state subsidies—pillars of China’s industrial policy. Accepting structural changes would hurt state-run enterprises; rejecting them could reignite the trade war. For China, the truce signals vulnerability and the need to rethink its growth model.
Implications for Global Markets
Short-Term Stabilization, Long-Term Uncertainty
Markets rallied on news of the truce—Hang Seng surged 3.8%, the S&P 500 gained 2.3%, and the MSCI World Index turned positive after weeks of flatlining. The optimism, however, is tactical, not structural. While global logistics costs (Baltic Dry Index +4.4%) and commodity prices may normalize, investors remain wary of the deal unraveling.
WTO projects global trade growth at just 1.7% in 2025, signaling that any recovery will likely be fragile. The uncertainty will keep supply chain diversification alive as companies seek “China-plus-one” sourcing strategies regardless of tariff status.
Implications for India
1. India’s Export Dreams on Hold?
India had hoped the US-China decoupling would redirect supply chains toward its shores. While it did see gains in chemicals, electronics, and engineering goods, they have not matched Vietnam or Mexico in scale. India’s exports to the US grew by 8.7% in 2024, but Vietnam’s rose by over 24%.
With tariffs paused, global firms may hesitate to move further out of China. The biggest risk is that India may compete with a resurgent China for the same export pie.
2. Investment Outlook: Still Tepid
FDI inflows to India fell to $49 billion in FY24, down from $59 billion in FY23. Tariff-related uncertainty had sparked optimism for India’s role as an alternate hub, but the truce may cool that momentum. Moreover, India remains only a partial substitute for China’s scale and efficiency without labor law reform and logistics upgrades.
Sectoral Gainers & Losers in India
India needs more than proximity and scale to convert global trade flux into a long-term advantage. It needs predictability. That means:
1. Trade Diversification Impact
India hoped to benefit from US-China decoupling, but the truce may slow relocation.
- In 2023-24, Vietnam’s exports to the US rose by 24%, while India’s rose just 8.7% (UN Comtrade).
- FDI inflows into India fell to $49 billion in FY24, down from $59 billion in FY23.
- The US is India’s largest trading partner (bilateral trade of $118.2 billion in FY24), but no structured trade pact like RCEP or the Indo-Pacific Economic Framework exists.
2. Sectoral Winners and Losers
Sector | Outlook | Reason |
Electronics | Negative | Delay in relocation from China may hurt PLI program goals |
Textiles | Negative | Orders may return to China, hitting the Tiruppur & Surat clusters |
IT Services | Positive | As trade shifts to digital, Indian firms gain from stable US demand |
Pharma | Neutral | India still depends on Chinese APIs; the tariff pause doesn’t change that |
Renewables | Slightly Positive | Diversification from Chinese solar panels may continue, albeit more slowly |
3. Export & Import Sensitivity
India’s exports to China and the US represent about 25% of total outbound trade.
- India’s top exports to the US are gems, textiles, and pharma.
- India’s top exports to China: Iron ore, chemicals, and electronics.
Any reset in US-China trade flows will inevitably squeeze margins and shift priorities of global buyers.
India’s Strategic Way Forward
1. Accelerate FTA Negotiations
India’s ongoing talks with the UK and EU must be fast-tracked. Without tariff leverage, India risks being boxed out of supply chain shifts.
2. Revive Manufacturing Push
PLI schemes in electronics and auto components must focus on value addition and not just assembly.
3. Ease of Doing Business
India ranks 63rd in the World Bank’s Doing Business Index. For India to win global trust, red tape must be minimized, and infrastructure (especially ports and logistics) must be scaled.
4. Push for Trade Tech
AI, blockchain-led trade logistics, and digital clearance can give India a competitive edge in compliance and delivery reliability.
India must act urgently. The 90-day window isn’t just for the US and China—it’s India’s chance to recalibrate before the trade tables are redrawn again.
Conclusion
The US-China trade deal isn’t a resolution—it’s a timeout. But for the rest of the world, it signals that economic superpowers can’t decouple without damage. For India, this is a reminder that opportunities in global trade are rarely handed over. They must be earned through reforms, speed, and strategic clarity.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
- Archana Chettiarhttps://www.equentis.com/blog/author/archana/
- Archana Chettiarhttps://www.equentis.com/blog/author/archana/
- Archana Chettiarhttps://www.equentis.com/blog/author/archana/
- Archana Chettiarhttps://www.equentis.com/blog/author/archana/