US-China Trade Truce Challenges India’s Competitive Edge

The recent trade agreement between the United States and China has narrowed the tariff disparity between China and India, raising concerns about India's competitive advantage. Ajay Srivastava of the Global Trade Research Initiative asserts that this development undermines India's attractiveness to companies relocating from China under the 'China Plus One' strategy.

The 'China Plus One' strategy involves businesses diversifying their investments away from China, an advantage now diminished as the US and China ease trade tensions. This agreement entails both countries withdrawing reciprocal tariffs, which brings tariffs closer to parity, posing challenges for India's industrial expansion.

Under the new pact, China will lower tariffs on US goods from 125% to 10%, while the US plans to reduce its tariffs on Chinese imports from 145% to 30%. This significant policy shift risks stalling deep manufacturing projects in India, Vietnam, and Mexico, with investors possibly reconsidering their commitments.

To remain attractive, India is encouraged to pursue strategic trade deals with the US, preserve low tariff rates, and avoid tariff hikes. Ajay Srivastava stresses that India must focus on reducing production costs, improving logistics, and maintaining regulatory stability to retain its edge in attracting global manufacturers.

The lack of trade policy predictability in India poses further challenges. Srivastava advises resistance against opening sensitive sectors like automobiles and pharmaceuticals without reciprocal benefits in future free trade agreements.

President Donald Trump, emphasizing tariff reciprocity since his second term, paused tariffs for 90 days to allow countries to negotiate trade deals with the US. Meanwhile, India contemplates strategies to secure its place amidst evolving global trade dynamics.

(With inputs from agencies.)