In an unexpected turnaround that has pulled the US from the brink of recession, the Trump administration and China have agreed to pause their mutually devastating tariffs. The US will now reduce import duty on Chinese goods from the absurdly high 145 percent to 30 percent, while China will scale down on US goods from 125 percent to 10 percent. The declaration of the world’s two largest economies that they “are in agreement that neither side wants to decouple” has come as a shot in the arm to weakening economies round the world. Retail prices in the US had already begun to creep up as Chinese ships stopped berthing at American ports. Manufacturers scrambled and supply chains began to teeter. In China, factory output slowed as firms laid off workers after US orders began drying up.
As investors cheered, equity markets rebounded. As trade between the two giant economies begins to flow again, there will be a multiplier effect on other economies, too. However, those countries that did not retaliate with reciprocal tariffs have been left with a raw deal. For instance, Vietnam and Thailand, which had accepted tariffs at 46 and 36 percent, respectively, could now see manufacturers targeting the US markets, move to China where tariffs are down to 30 percent.
However, the world is not yet free of jitters since there is no final settlement, and the pause is only for 90 days. In all the Trump-induced chaos, it is China that has emerged as a far more reliable trading partner. For India, which currently faces a baseline 10 percent tariff on exports to the US, the scaling down of hostilities between US and China is, in a way, a setback. China getting priced out of the US market was a huge opportunity for Indian exporters; but for now, that edge has vanished. Trump’s move to slash pharmaceutical prices in the US will also hit Indian exporters who supply about 40 percent of the US’s generic drug needs. At a broader lever, this puts a question mark on the China+1 formula—the business strategy of multinationals shifting to alternative hubs in Mexico, Vietnam or India, to cushion against the volatile tariff regime China faces. The tumult in global trade is far from over, and India would do well to clinch a deal with the US at the earliest.