While India does have some strengths, the task facing Indian negotiators is likely to be made more challenging by competitors staring at a much worse scenario.
China now faces a total tariff rate of 125% (at the time of this keystroke), while Vietnam risks being reimposed with 46% 'reciprocal' import duties -- among the highest rates the U.S. has imposed.
Their economic vulnerability, as exports to the U.S. are a large part of GDP, has led to diverging responses. While China has decided to respond with countermeasures, Vietnam has offered to wipe out all tariffs, potentially paving the path to a free trade agreement with the U.S.
"Just had a very productive call with To Lam, General Secretary of the Communist Party of Vietnam, who told me that Vietnam wants to cut their Tariffs down to ZERO if they are able to make an agreement with the U.S", Trump posted on social media websites Truth Social and X soon after unveiling his tariff program.
On Wednesday, Treasury Secretary Scott Bessent, who is leading the trade negotiations, revealed that he was meeting with Vietnam's trade negotiators that day.
Vietnam had preemptively offered to slash tariffs on agriculture and energy imports from the U.S. Once the tariffs were unveiled, it went further by promising to buy aerospace, defense, and security products from the U.S.
The point is, that Vietnam is throwing the kitchen sink at the issue of tariffs and is eager for free trade. However, the move could also spur other nations to compete by offering the U.S. even more favorable terms of trade.
In the short term, while Apple is reportedly planning to ship more made-in-India iPhones to the U.S. to offset the steep tariffs on China, Cupertino executives might also wonder whether zero tariffs in Vietnam -- if there is a deal -- might be a better bet than India.
It would be natural for companies to think that while 26% tariffs on India are better than the 125% tariffs on China, 0% tariffs on Vietnam would be even better. And that school of thought isn't going to be limited to California either.
Japanese electronics maker Sourcenext Corp this week announced plans to set up a new factory in Vietnam after its existing facility in China became impractical for exports to the U.S.
At first glance, all of this may appear to jeopardize India's current relatively favorable position with the U.S.
"Although India wants to have their own solution to manufacturing industries it [U.S.-Vietnam deal] will surely have some impact on its [negotiations] with the U.S," Mark Martyrossian, a director at Aubrey Capital, told CNBC's Inside India. "And remember the bully is always more forgiving of those who succumb earlier to his charm. Those who hang out longer have him licking his chops."
Aubrey's global emerging markets fund has a 32% allocation to China and a 30% allocation to India.
Far from a race to the bottom to lower tariffs, though, Martyrossian believes India has leverage while negotiating with the U.S., pointing to the fact that exports in merchandise are a tiny proportion of India's overall economy. Meaning, that Indian trade negotiators dealing with the U.S. are unlikely to have the mandate to make widespread concessions similar to Vietnam.
Others agree.
"The situation on tariffs is still evolving, but India is relatively well-placed due to its low merchandise export dependence and therefore may have some flexibility in working out its eventual position," said Abhiram Eleswarapu, head of India equities at BNP Paribas. "Most sectors in India derive less than 10% of their revenue from exports to the U.S. with the exception of IT services and Pharmaceuticals."
"India will not compromise on certain areas like agriculture, and is therefore in a better bargaining position," said Gaurav Narain, principal advisor at the London-listed India Capital Growth Fund.
"My own sense is that India will try and offset the negative trade balance ... by committing to higher imports in areas like oil / defence etc. However, it could lower tariffs to 0% in many areas like pharmaceuticals and autos, where India already has a very well developed, low-cost manufacturing base, and imports would only be of premium products."
Narain added that, even in the short term, India will see "limited impact" from the tariffs, as supply chains cannot be easily changed, as the case with Apple highlights.
"I think companies will take a long-term, structural approach to de-risking their supply chains. India has the advantage of not being perceived as simply a reroute from China, which works in its favour," Narain added.
For investors in Indian stocks, the market has been less forgiving. Aside from the tariff turbulence rocking markets, stocks in India are still considered too expensive due to their lofty valuations.
"Earnings estimates still need a reset lower," said Aditya Suresh, Head of India equity research, at Macquarie Capital. "We believe the worst is behind and we could see inflows in the coming months."
Suresh also suggested that investors could hide from the current turbulence by investing in stocks that derive much of their revenues locally, instead of large-cap exporters. The Macquarie analyst said he favors telecom firm Bharti Airtel, oil and gas firm GAIL, and UltraTech Cement until the dust settles.