India emerges as tariff war winner-in-waiting, says Moody’s

India’s recent signing of a free trade agreement (FTA) with the UK in May, along with active talks with the European Union (EU), are expected to further support its trade ambitions

India could be positioned to benefit from lower US tariffs compared to other Asia-Pacific (APAC) nations, potentially enhancing its appeal as a global manufacturing hub, Moody’s Ratings stated on Thursday.

In its regional outlook on APAC sovereigns, Moody’s noted that several export-dependent economies across the region were hit by sharply increased US tariffs in April. While bilateral negotiations may ease some of these trade barriers, persistent policy uncertainty continues to weigh on investment decisions and hamper trade momentum.

“Trade policy ambiguity and potential restructuring of the global trade landscape have heightened both cyclical and structural credit risks in APAC,” Moody’s said. Countries like Vietnam and Cambodia, which had earlier profited from manufacturing shifts out of China, now face elevated tariffs and growing vulnerabilities.

In contrast, India stands out as a potential beneficiary amid this shifting trade dynamic. Moody’s pointed out that India may face comparatively lower tariffs than many of its APAC peers, improving its prospects for attracting fresh investment and accelerating its emergence as a manufacturing destination.

India’s recent signing of a free trade agreement (FTA) with the UK in May, along with active talks with the European Union (EU), are expected to further support its trade ambitions. However, Moody’s cautioned that the US push to reshore key manufacturing sectors may limit the scale of benefits India could derive from global supply chain realignments.

The trade relationship between India and the US remains under negotiation. On April 2, Washington imposed a 26% reciprocal tariff on Indian exports but granted a 90-day suspension, which expires on July 9. The baseline 10% US tariff, however, continues to apply. India is currently seeking a full exemption from the additional 26% levy.

Ongoing discussions between the two nations aim to finalise an interim trade agreement. India is pressing for increased market access for its labour-intensive goods, while the US is seeking tariff concessions for its agricultural exports. Reaching a deal before the suspension ends is a priority for both sides.

Moody’s also tempered expectations about rapid investment shifts, stating that meaningful changes in manufacturing and sourcing decisions would take years to unfold due to lingering trade policy uncertainty. “Rather than committing to significant moves, companies are more likely to delay or slow investments while waiting for clarity. Even after that, any relocation of production facilities will be a long-term process,” the agency said.

Given a softer global economic outlook, Moody’s anticipates that interest rate policies across APAC and globally will become more accommodative in the latter half of 2025.