After the ceasefire, trade is back in focus

And textile manufacturers struggle to manage a demand surge

Get full access to Reuters.com for just $1/week. Subscribe now. India File India File By Ira Dugal, Editor Financial News, with global Reuters staff  After four days of intense fighting, India and Pakistan announced their intent to dial down the hostilities, bringing attention back to another urgent matter at hand for India: trade. What are India's prospects for deflecting the threat of U.S. tariffs, and could last week's trade deal with Britain offer a boost? That's our focus this week. And, India's textile manufacturers struggle to meet demand from global giants that are relocating production to cut their exposure to tariffs. Scroll down for more on that. This week in Asia Asian markets cheer as pause in US-China trade war boosts risk appetite Japan's finance minister wants to discuss forex with Bessent at G7 This US-owned factory in China made toys bound for Walmart. Tariffs put it on life support Nippon Steel exec headed to Washington next week in push for US Steel deal, source says Uneasy calm   Indian security forces search a person with a scooter alongside a road, following the ceasefire between Indian and Pakistan, in Srinagar, May 11, 2025. REUTERS/Sharafat Ali The fragile ceasefire between India and Pakistan brought relief across South Asia and much of the globe. Border area residents and world leaders alike had braced for escalating violence that might even have put the countries' nuclear arsenals in play. While Prime Minister Modi warned of more strikes if there is a "terrorist attack", for now fighting has abated.  For investors in the region, the ceasefire means they can return their attention to a more mundane anxiety: whether New Delhi can strike a trade deal with the U.S. to avert President Donald Trump's hefty "reciprocal" tariffs. Just one day before last week's intense fighting broke out, India signed a trade accord with Britain that could serve as a template for addressing the tariff imbalances targeted by Trump. At the same time, Monday's announcement of a U.S.-China deal to pause reciprocal tariffs for 90 days could further complicate India's calculations. In any event, the trade wrangling with Washington may well end up enmeshed with diplomacy around Kashmir, the main flashpoint for the India-Pakistan conflict - and where New Delhi's diplomatic ambitions could clash with Trump's global manoeuvring. The high-profile U.S. role in the hastily prepared ceasefire grates with Indians, who see the dispute over Kashmir as a strictly bilateral matter with Pakistan, as Reuters correspondents Krishna N. Das and Charlotte Greenfield explain in this analysis. In a White House briefing on Monday, Trump explicitly linked his push for a truce with the trade issue. "I said: 'Come on, we're going to do a lot of trade with you guys. Let's stop it, let's stop it. If you stop it, we're doing trade. If you don't stop it, we're not going to do any trade.'" 'No permanent allies' Analysts have questioned India's true diplomatic heft with western powers, particularly the U.S., citing New Delhi's inability to block a tranche of aid from the International Monetary Fund to Pakistan as the conflict raged. Ajay Srivastava, a former top bureaucrat and founder of the New Delhi-based Global Trade Research Institute, notes that Trump's statement made no reference to the IMF aid, nor to India's accusations against Pakistan over what it sees as terrorism in Kashmir. Pakistan denies supporting any insurgent activity in Kashmir. Trump's comments, Srivastava said, show there are "no permanent allies, only permanent interests". "The U.S. must be engaged on trade, technology, and investment, but never given a blank cheque on security alignment," he said in a note over the weekend. For the immediate future, India will be trying to get an initial trade agreement with the U.S. in place before July 8, when the 90-day pause on Trump's reciprocal tariffs ends. India has offered to slash its tariff gap with the U.S. to less than 4%, from nearly 13% now, in exchange for an exemption from Trump's "current and potential" tariff hikes, Reuters journalists Shubham Batra and Shivangi Acharya reported last week. As part of the deal, India is also aiming to get preferential market access in key sectors to give it an edge over competing exporters. India's success in striking a bilateral deal with Britain a week ago may serve as a precedent that boosts New Delhi's confidence in talks with Washington. India brought its average tariff of 14.6% on British imports down by 5.5 percentage points while Britain reduced its average tariff of 4.2% by 2.2 percentage points, according to a Citi analysis of the deal. Aircraft parts, agricultural products, whiskey, autos and medical devices were some of the sectors where India agreed to reduce tariffs. In turn, India's exports of textiles, gems and jewellery, marine products, footwear and toys into Britain will also face reduced tariffs. What do you think are India's prospects for a trade deal with the U.S. as attention shifts from the conflict over Kashmir? Write to me at ira.dugal@thomsonreuters.com The week's must-read U.S. President Donald trump's proposed "reciprocal" tariff of 26% on Indian exports, lower than the rates proposed for China, Vietnam and Bangladesh, left a window of opportunity for India's textile industry. From Walmart to Costco, firms are looking to sidestep higher tariffs by manufacturing in India. But local suppliers are struggling to meet the demand. Don't miss this deeply reported story on how the scarcity of trained workers could hurt India's ability to capture the opportunity.  Market matters   India's benchmark equities indexes, the rupee, and bonds all soared after the ceasefire with Pakistan over the weekend.  Equity indexes posted their best session in more than four years on Monday, gaining about 3.8%.  "Assuming both sides adhere to the ceasefire, we expect risk assets in both India and Pakistan to deliver a relief rally," Barclays strategists said in a note. They see minimal macroeconomic impact of the recent tensions for India, barring some drop in air traffic, and expect the Indian economy to grow 6.5% in 2025-26.  In pictures   People evacuated from their homes near the Line of Control between India and Pakistan wait to return to their villages in Gantamulla in Indian Kashmir's Baramulla district, May 11, 2025. REUTERS/Stringer While the governments and militaries of India and Pakistan announced a truce over the weekend, people living close to border areas remained nervous about returning home. Life was nearly back to normal on Monday with more people out on the streets, but some schools remained closed and advisories were issued about unexploded munitions in frontline border villages. Read more This newsletter was edited by Edmund Klamann, Deputy Head, Asia Desk in Singapore. Sponsors are not involved in the creation of newsletters or other Reuters news content. Advertise in this newsletter or on Reuters' website Reuters India File is sent once a week. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here. Want to stop receiving this newsletter? Unsubscribe here. To manage which newsletters you're signed up for, click here. This email includes limited tracking for Reuters to understand whether you've engaged with its contents. 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