This week, India and the US finalized the terms of reference for the impending negotiations on a free trade agreement. The roadmap is expected to be guided by an integrated approach toward lowering tariffs and non-tariff barriers, better market access and a robust enmeshed supply chain. 

The "Liberation Day" tariffs announced by Donald Trump on April 2 cannot be more shackling for most countries, including India. The effects of Trump's 26% tariff on India will not only significantly hurt Indian exports but will cast more than a shadow of doubt on its ability to adapt quickly to the realignment of global supply chains, which Trump's draconian tariffs seek to alter fundamentally. 

As the situation evolves, the quantum of tariffs and counter-tariffs has been reduced to mere numbers. Hopes for a fast US-China deal to resolve trade tensions have all but evaporated.

The 90-day pause on reciprocal tariffs, except for China, which faces a whopping 145% tax, is a breather for most nations. But no government would dare make long-term plans in this uncertain situation. In some sense, global trade is being rewritten in real-time.

Two developments have signaled a slight softening of Trump's stand. On April 11, he paused the higher reciprocal tariffs on targeted countries, except for China, for 90 days to allow time for countries to negotiate with the US.  On April 13, he announced exemptions of tariffs on goods that the US does not produce, like phones, computers and other electronics.

There is also the looming threat of tariffs on pharmaceuticals, which if implemented, would spell near doom for India's sector. By some estimates, India could potentially stand to lose around 30% of its exports to the US alone.

India should not rejoice at the fact that China (145%), Vietnam (46%), Thailand (36%), Cambodia (49%), Indonesia (32%) and Bangladesh (37%) have been hit with higher impositions. But this does present export opportunities and market space for India primarily in textiles, machinery, automobiles, toys and semiconductors.

India should interpret the new Trump-imposed reality as both a challenge and an opportunity. In a sense, India is facing a situation similar to 1991 when dwindling foreign exchange reserves literally forced the country to open up.

The new US tariff regime and its showdown with China present an opportunity for some serious soul-searching on lost opportunities, to recognize and identify areas of fragility and confront its economic policy demons.

Many in India are unrealistically pinning their hopes on a landmark Bilateral Trade Agreement (BTA) with the US as a way out of this mess. Confronted with an increasingly protectionist global trading system, India's approach to free trade deals will still be underpinned by its multi-vector foreign policy and its firm belief in a multi-polar world.