The pause applies only to the elevated reciprocal tariffs. All other imports into the US will still be subject to a 10% tariff until July, with no clarity on what will follow thereafter. However, the automotive sector, steel and aluminium remain subject to a 25% import duty. Energy and potash coming from Canada will also be subject to higher tariffs; additionally, there is a 25% border security tariff on imports from Canada that are non-compliant with the Canadian- United States- Mexico Agreement (CUSMA).
China, which retaliated almost immediately — currently levying tariffs of 85% on US imports — has received special treatment. In response to this retaliation, the US has imposed staggering tariffs of 125% or 145%, prompting further retaliation from China, which has raised its levy to 125%. There will be no winners in this trade war between the world’s two largest economies. Worse still, it will cast a shadow globally. The International Monetary Fund (IMF) had projected that, under normal circumstances, trade between the two nations would have accounted for around 43% of the global economy in 2025. According to the World Trade Organization, this will now be impacted by as much as 80%.The United States is the largest importer of Chinese goods — China will inevitably have to look for markets beyond the US. As the manufacturing powerhouse of the world, China is likely to double down on its longstanding strategy of covertly supporting its trade, as the domestic market alone cannot absorb the entirety of its manufacturing output.
The trade war will hurt the US as well — it imported goods worth $440 billion from China in 2024. These goods will now need to be sourced from other countries, many of which lack the capacity to meet US demand. The US itself is unlikely to be able to domestically manufacture all its requirements for the foreseeable future.
Moreover, the universal 10% levy imposed by the US will make all imports more expensive. Its exports will also suffer, as China was a major market — particularly for agricultural produce — and the 125% tariffs imposed by China will make US goods prohibitively expensive.
There is an old African proverb: when two elephants fight, it is the grass that suffers. Innocent third parties bear the brunt of the conflict. Where does this US-China trade war leave India, and what should India’s way forward be?
India must proceed cautiously. By refraining from retaliating with reciprocal tariffs, it has remained in the good books of a capricious US regime. However, a jump to 10% from the previous weighted average of 3.3% is still significant. There is also uncertainty surrounding pharmaceuticals.
A bilateral trade agreement with the US should be pursued only as a last resort. The US has proved to be an extremely unreliable trading partner. Even free trade agreements with South Korea, Australia, and CUSMA countries have not spared them from reciprocal tariffs.
The US Trade Representative’s 2025 report lists several non-tariff barriers with India — all of which would be on the negotiating table. India would likely concede more than it gains.
Instead, India should follow the EU’s example and negotiate reciprocal tariff reductions. It should identify sectors critical to its export industry and reduce tariffs accordingly — not specifically for the US, but in line with the Most Favoured Nation (MFN) principle. This could serve as a starting point to address US-specific industry concerns. This will be challenging, as the US, as evident from President Trump’s repeated assertions, believes it is negotiating from a position of strength.
It is reported that China has reached out to India — clearly operating under the assumption that “the enemy of my enemy is my friend.” However, given China’s political ambitions, hegemonic tendencies, and economic strength, India perhaps has more reason to be wary of China than of the US. Whether to engage with China will ultimately be a political decision. Again, the prudent course of action would be to identify specific sectors and proceed with caution.
Ultimately, India must expand its list of trading partners to avoid heavy dependence on any one country. Finance Minister Nirmala Sitharaman, currently in the UK, has indicated that 90% of the free trade agreement with the UK has been agreed. Separately, progress is being made with the EU on a trade agreement. Indian industry must understand that each of these trade deals will involve opening the economy to foreign competition — and that may not be a bad thing. Our trade and industry sectors must seize the opportunity to expand into new markets.
These are volatile times. The Reserve Bank of India has lowered its GDP projection. The government must step in to support trade and industry. All departments should be sensitised to ensure they do not act as impediments as we navigate the challenging road ahead.
— The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
Read his previous articles here
