India’s US Export Dreams On Pause Amid US-China Tariff Truce
US-China tariff cuts threaten India’s hopes of capturing American orders, leaving exporters scrambling for alternatives.
On May 12, China and the United States reached a temporary truce — the US slashed tariffs on Chinese goods from 145% to 30%, while China cut its tariffs from 125% to 10%, both for a 90-day window. The announcement came just 40 days after US president Donald Trump declared his 'Liberation Day' tariffs on April 2.
But this agreement between the world’s two largest economies might not be good news for India.
For weeks, Indian exporters had been buzzing with hope, expecting a windfall of US orders that would otherwise have gone to China, especially in sectors like textiles and hand tools.
But with the tariff war cooling down, that opportunity seems to be slipping away.
"The tariff imposed by the Trump administration on China was so high that the US market was practically shut for China, creating a reasonable opportunity for a portion of Chinese trade to shift to India. But now, with a 115% tariff reduction from both sides, the entire game changes," Mithileshwar Thakur, secretary general of Apparel Export Promotion Council (AEPC), told The Core.
After the US imposed steep tariffs on China starting April 2, US buyers showed increased interest in Indian suppliers, especially in hand tools and pet clothing.
For India, this was a chance to make the most of the usually lean period for the textile industry between April and September. But with the tariff cuts now in place, those hopes might be short-lived.
“Let’s be realistic — India can’t absorb all of China’s lost market. Our current capacity simply isn’t enough. But this is a golden opportunity, especially in categories like educational and puzzle toys, where we’ve always done well. The focus must be on expanding our production base,” Ajay Sahai, chairman of the Federation of Indian Export Organisation, told The Core.
India’s export ambitions were riding on the US-China tariff chaos, but the sudden truce threatens to derail them. What seemed like a golden chance for Indian exporters may now become a fleeting dream.
All That Happened In The Last 40 Days
During the 137th Canton Fair in China’s Guangzhou that recently wrapped up, American buyers, who saw China as their one-stop shop, approached Indian exporters.
“China faced higher tariffs than India. Naturally, buyers wanted cheaper options, making India an attractive alternative,” Rajat Srivastava, director at Engineering Export Promotion Council (EEPC), told The Core.
Multiple Indian exporters reported a surge in enquiries, especially from US buyers who once sourced directly from Chinese manufacturers, all thanks to the tariff troubles.
“Chinese manufacturers were reaching out to us with an offer to route their shipments through India. Even US customers were directly getting in touch, with a noticeable rise in enquiries for our product range, especially in hand tools,” Gaurav Kanwar, an exporter from Jalandhar, told The Core.
It’s not just about US buyers; even Chinese manufacturers, feeling the heat of tariffs, were exploring ways to maintain their US business. Some are keen on using India as a hub for value addition. The idea? Ship raw materials to India, transform them enough to qualify as ‘Indian’ products, and then export them to the US.
However, the Indian government had taken a firm stance against mere ‘routing’ of Chinese goods through India. The focus is on genuine value addition and adherence to origin rules.
“We can’t simply import Chinese materials, add minimal value and export them to the US as Indian products. That won’t work. The US requires ‘substantial transformation,’ which isn’t clearly defined yet," Pankaj Chadha, chairman of EEPC, told The Core.
Since many Indian exporters are receiving enquiries, especially for engineering goods, they were in talks with their Chinese counterparts to understand how the re-routing works.
"I have told many exporters — don’t try this (re-routing) until the rules are clear. Otherwise, your goods could get stuck or even confiscated in the US," Chadha added.
New Tariff Impact On India
The US-China tariff truce may be temporary, but if it becomes permanent, it could spell trouble for India.
“Right now, this is just a 90-day experiment. It remains to be seen where the tariff levels on India and China finally settle, as India is also in negotiations with the USA on tariff reduction,” Thakur said.
India is actively pursuing a trade agreement with the US, but as of now, no deal has been finalised. Indian officials have proposed reducing the tariff gap between the two countries from the current 13% to below 4%, aiming to secure exemptions from existing and potential US tariffs. These negotiations are ongoing, and while both sides have expressed interest in reaching an agreement, the outcome remains uncertain.
Lost Opportunity?
India has long aimed to benefit from the ‘China Plus One’ strategy, where companies diversify manufacturing beyond China. While there have been notable strides, India's overall success in this endeavour has been mixed, with several challenges hindering its full potential.
Apple has substantially increased its manufacturing footprint in India. In 2024, iPhone exports from India reached a record $12.8 billion, marking a 42% year-on-year rise. Tamil Nadu, especially, has become a major hub, producing around 70-80% of India's iPhone output through companies like Foxconn, Pegatron and Tata Electronics.
The problem isn't just about opportunity — it’s about capacity. India’s manufacturing sector, while growing, is nowhere near the scale of China’s industrial giant.
Despite these advancements, India faces several hurdles. A report by NITI Aayog indicates that India has seen limited success in capturing the 'China Plus One' strategy, with countries like Vietnam, Thailand, Cambodia and Malaysia becoming bigger beneficiaries. Factors such as cheaper labour, simplified tax laws, lower tariffs, and proactive free trade agreements have played a role in these countries' successes.
India's infrastructure and regulatory environment have posed challenges. But scaling up is easier said than done. “It’s a chicken-and-egg situation. Do we build capacity first and then attract buyers? Or do we wait for buyers and then create capacity? How do we build capacity without demand, and how do we attract demand without capacity?” Moiz Gabajiwala, CEO of Zephyr Toymaker, told The Core.
While India boasts a large workforce, there are concerns about the availability of skilled labour in certain sectors.
“To compete, we need more factories, more investment and we need to move to labour-surplus regions like Odisha, Madhya Pradesh, and Bihar,” Thakur said.
Current manufacturing clusters — especially for textiles — are mostly near Tier 1 or Tier 2 cities, where labour shortages are a constant headache. Workers often return home during peak festive seasons, leaving factories scrambling.
But even in labour-surplus areas, there’s a bigger problem: finding young, skilled workers.
“In labour-intensive sectors, profit margins are shrinking, and managing a large workforce is tough. The younger generation is drifting towards tech-oriented software jobs and a bigger challenge is to attract them to such labour-intensive textile and apparel businesses,” Thakur said.
In a world where India dreams of becoming the next big manufacturing hub, these challenges are more than just growing pains — they’re potential dealbreakers.
In short, for Indian exporters, the brief hope of capturing the US market share now seems like a distant dream. With the US and China temporarily easing tariffs, India risks being sidelined.
