US-China Trade Talks Ripple Through Emerging Markets Like India and Brazil

SINGAPORE, June 10, 2025— As trade negotiations between the United States and China extend into a second day in London, emerging markets such as India and Brazil are bracing for the ripple effects of potential outcomes. The talks, aimed at de-escalating a trade war that has disrupted global markets, are prompting shifts in trade patterns and currency dynamics, creating both opportunities and uncertainties for these fast-growing economies.

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Trade Diversion Boosts Emerging Economies

The US-China trade tensions, marked by steep tariffs imposed earlier this year, have redirected trade flows, benefiting countries like India and Brazil. India has seen a surge in textile and electronics exports to the US, filling gaps left by reduced Chinese imports, while Brazil’s soybean and beef exports to China have soared as US agricultural goods face retaliatory tariffs.

“Emerging markets are stepping into the void created by the US-China standoff, with India and Brazil capitalizing on redirected supply chains,” said Priya Sharma, an economist at HSBC Global Research. However, she cautioned that these gains could be temporary if a comprehensive US-China deal stabilizes trade relations.

The redirection of trade has also spurred foreign direct investment (FDI) in these nations. India’s logistics and infrastructure improvements have attracted tech and manufacturing firms diversifying away from China, while Brazil’s agribusiness sector has drawn significant Chinese investment.

According to a recent UN report, global trade could shrink by 3% due to ongoing tariff disputes, but emerging markets like these are seeing modest export gains to regions like the EU and Southeast Asia, further boosting their economic profiles.

Did you know?
India’s electronics exports to the US grew by 12% in Q1 2025, driven by companies like Apple shifting iPhone production to Indian facilities, a move prompted by US tariffs on Chinese goods.

Currency Volatility and Economic Challenges

While trade diversion offers opportunities, it comes with heightened currency volatility for emerging markets. The Indian rupee and Brazilian real have faced pressure as the US dollar fluctuates amid trade uncertainties. The rupee slipped 0.3% against the dollar to 83.45, and the real fell 0.4% to 5.62, reflecting investor caution ahead of the talks’ outcome. “Currency markets are jittery because any US-China deal could shift capital flows rapidly, impacting emerging market currencies,” noted Carlos Mendes, a currency strategist at Nomura.

For Brazil, the reliance on commodity exports to China, particularly soybeans, exposes its economy to risks if trade tensions ease and US agricultural goods regain market share. Similarly, India’s textile and tech sectors face challenges from potential supply chain disruptions if the talks fail to produce a lasting agreement. Both nations are pursuing diversification strategies, with India negotiating trade deals with the EU and Brazil strengthening ties within the BRICS bloc, to mitigate their dependence on US and Chinese markets.

Balancing Opportunity and Risk

The economic impact on India and Brazil hinges on the delicate balance between trade diversion benefits and exposure to global market volatility. Analysts at Goldman Sachs note that emerging markets with export-oriented economies, like India, could see GDP growth boosted by 0.5-1% in 2025 if trade flows continue to shift in their favor.

However, Brazil’s heavier reliance on commodities makes it more vulnerable to price swings, with soybean prices already down 8% from their 2024 peak due to oversupply concerns. Central banks in both countries are expected to maintain tight monetary policies to counter inflation risks from currency depreciation, potentially dampening domestic growth.

As the US-China talks progress, the outcomes will shape the trajectory of emerging markets. A de-escalation could stabilize global trade but reduce the trade diversion benefits currently boosting India and Brazil. Conversely, prolonged tensions could deepen their integration into global supply chains, albeit with heightened risks of economic instability.