The truce between the US and China on reciprocal tariffs is something of a comedown for the former, given how the Trump administration has been repeatedly refuting any possibility of backing down on its decision to impose high import levies on Chinese goods. The more conciliatory and accommodative effort in Geneva suggests there may have been some reassessment of the potential damage that these high import levies could cause on inflation and consumer demand. Subsequent analysis may have resulted in the realisation that it might not necessarily be China which may “suffer more” from the trade war. The contraction in US gross domestic product in Q1, the prospect of a recession in the US in the second half of the year, and also the fact that the US Federal Reserve is in no hurry to cut interest rates, are all factors that would have weighed on the minds of US policymakers.
China, too, had earlier taken a rigid stand. But of late, Beijing has become increasingly concerned about the impact the tariffs could have on its economy. Factory output has already slowed and there are reports some firms were laying off workers as production lines of goods bound for the US began to grind to a halt. In that sense, it’s a big relief that the two countries have come to the table to work out a solution, albeit an interim one. As of now, there will be a 90-day pause on reciprocal tariffs; import levies have been rolled back 115% by both countries, even as they work on a final agreement. While the US will cut its combined 145% tariffs on most Chinese imports to 30% by May 14, China will lower its 125% tariffs on US goods to 10%. The consensus from both the countries is that neither side wants a decoupling. As US treasury secretary Scott Bessent said, “We do want trade, we want more balanced trade, and I think that both sides are committed to achieving that.”
While the promise of a final agreement in the not too distant future is encouraging, countries like India will be hoping the fine print doesn’t leave them worse off. Already the Trump administration’s decision to slash prices of prescription drugs by 30-80% is expected to hurt Indian exporters badly since the US accounts for nearly a third of the country’s pharma exports which were about $9 billion in 2024-25. India largely sells generics in the US. Much depends on the tariffs that are agreed to in the Indo-US bilateral agreement, currently being negotiated. Ahead of the 90-day pause, the US had proposed a 26% tariff for Indian exports to that country.
If US import levies on Indian goods are much higher than those imposed on competing nations, India would be disadvantaged. India is understood to be willing to narrow the tariff gap with the US by two-thirds to under 4%; that’s a fairly steep reduction of 9 percentage points in the average tariff differential. In return, India is also believed to be willing to give preferential access to 90% of US goods but wants to be spared the high tariffs proposed so far. India scores over other nations in that it does not impose too many non-trade barriers. A favourable trade deal with the US, India’s biggest trading partner, would come as a relief, and boost to the country’s export sector.