Tariff Truce Between the U.S. and China: What It Means for Investors

In early November 2025, China announced that it would suspend for one year the additional 24 % tariff on U.S. goods that it imposed in April while retaining a 10 % base levy. This move follows a bilateral accord with the United States in which both sides agreed to a one-year “truce” in the tariff and export-control war. For global investors, this development presents both opportunities and risks: supply-chain shifts, emerging-market realignment and trade-flow diversion are all in play.

Global Trade Recalibration: Supply Chains in Motion

The announcement signals a partial thawing of the U.S.–China trade war, which had seen retaliatory tariffs, rare-earth export restrictions and supply-chain disruption. By suspending the extra 24 % tariff on U.S. goods for a year, China is offering relief to segments of U.S. exporters and signalling a willingness to reset trade relations.

However, China will still maintain a 10 % tariff, and notably U.S. soybeans continue to face a combined tariff of around 13 % (including pre-existing duties) which traders say still leaves U.S. crops uncompetitive relative to Brazilian alternatives. Thus the change is meaningful but historic structural barriers persist.

For investors, this suggests two major themes:

• Downstream relief for U.S. exporters and component suppliers: U.S. firms that export intermediate goods to China may see easing of cost burdens (but not full resolution) and may reconsider margin pressures imposed by tariffs.
• Acceleration of the “China +1” supply-chain strategy: Many multinational firms had already begun shifting capacity from China to alternative hubs in Southeast Asia and India. The partial reset may either slow that trend or steer it differently. A recent academic study by Luo, Kang & Di (2025) found that global value chains are increasingly shifting to “China +1” partners, especially ASEAN countries.

Emerging Markets: Winners and Risks

Emerging-market economies now face a changed set of trade dynamics. With China easing tariffs, some exporting countries can gain from redirected trade flows. But at the same time, these flows may favour the major players with supply-chain capacity and scale.

In particular, countries like Vietnam, Thailand, Indonesia and India stand to gain from supply-chain diversification and trade-flow “leakage” from China. However, the competition is intense and benefits will accrue to those with logistic, infrastructural and policy readiness.

On the flip side, emerging-market exporters facing Chinese final-goods competition may be squeezed if China’s cost advantage remains. Investors should monitor which jurisdictions gain manufacturing-export market share and which face margin erosion.

India’s Opportunity: Trade Diversion in Focus

The partial U.S.–China truce offers a window of opportunity for India as an alternative sourcing and export hub. India’s merchandise and services exports recorded growth of 5.19 % in April–August 2025 versus the same period a year earlier, reaching about US$ 346.1 billion in that time-frame. The country’s export basket is shifting non-petroleum and non-gems & jewellery exports grew about 7.8 % in that period.

Moreover, according to the Indian government’s “Trade Watch” report (October–December FY25), India appears well-positioned to gain share in U.S. supply-chains: at the HS-2 level, India can gain competitiveness in 22 of the top 30 product categories covering approximately 61 % of its exports to the U.S.

This suggests several actionable angles for investors in India-facing strategies:

• Electronics and engineering goods exports: India’s electrical machinery & parts segment grew strongly in Q3 FY25 it comprised about 11 % of merchandise exports and was led by smartphone assembly rising about 74 % year-over-year.
• Agriculture and processed food exporters: With some U.S. agricultural exports to China still facing tariffs, there may be opportunities for alternative exporters to China or Asia. India already exports tea, marine products and processed foods, which have shown growth.
• Diversified manufacturing for U.S. and Asian markets: As companies look to dual-source outside China, India may win production relocation and contract manufacturing work a long-term structural gain for investors tracking Indian manufacturing platforms.

Nevertheless, risks remain. India’s trade deficit with China widened to a record US$ 99.2 billion in FY2024/25, driven by electronics and solar cells imports. India remains dependent on Chinese components, which limits how much it can substitute inward supply. Investors will need to evaluate whether India’s infrastructure, policy and input-cost environment are robust enough to scale global-supply-chain participation.

Sectors to Watch and Sectors to Avoid

Sectors likely to benefit:
• Industrial capital goods and components exported from the U.S. benefiting from the tariff respite.
• Emerging-market manufacturing hubs (e.g., India, Vietnam) capturing supply-chain relocation and contract-manufacturing.
• Indian high-tech manufacturing and export sectors especially electrical machinery, smartphones, engineering goods, and processed foods.

Sectors facing headwinds:
• U.S. agricultural producers of soybeans may still struggle to regain lost share in China given the remaining tariff hurdle (~13 %) and cheaper Brazilian competition.
• Countries overly dependent on China exports or on Chinese domestic demand may risk margin erosion if China re-orients sourcing or sustains domestic-first policies.
• Indian sectors heavily reliant on U.S. and Chinese supply-chain inputs may face cost-pressures if component tariffs or shipping disruptions re-escalate.

Investor Takeaways

For institutional and retail investors with emerging-market exposure, the unfolding China–U.S. trade dynamic merits close monitoring. Key takeaways are:

• Watch for companies and economies that are positioned to benefit from supply-chain relocation: Indian contract manufacturers, Southeast Asian hubs, component suppliers with global footprints.
• Scrutinize sector-specific tariffs and cost-structures: relief in tariffs does not equal full normalisation existing duties will continue to shape competitive dynamics.
• Diversification counts: global portfolios may need to reflect shifts in trade-flows from China to alternate sources and markets, and investors should assess which jurisdictions are upgrades and which are under threat.
• Remain alert to re-escalation risks: this one-year pause is a truce not a final deal. Export-control regimes, non-tariff barriers and component-sourcing chokepoints remain unresolved.

In summary, the China-U.S. tariff pause is a notable development in global trade architecture. While not a full reset, it opens a window for investors to reposition towards those economies and sectors likely to benefit from the next phase of supply-chain realignment with India standing out as one of the key potential beneficiaries.