Will the US-China trade war offer an opportunity to India to replace Chinese goods with its products?
Will the trade diversion due to higher tariffs imposed on Chinese imports in the US benefit India?
Will the tariff war between the two biggest economies of the world encourage India to emerge as a manufacturing hub and create more jobs in the country?
At a time when the Indian economy has become sluggish, with the GDP growth rate plummeting to 6.4% for FY 2024-25 against 8.2% for FY 2023-24, the trade war may present India with an unprecedented opportunity.
All eyes are set on India and business tycoons, policymakers and think tanks of not only the two warring sides, but other economies also, are also pondering how New Delhi reacts to the development and exploits the opportunity.
Impending US-China Trade War
After the US imposed a 10% tariff on all Chinese goods, Beijing responded with retaliatory tariffs imposed on US imports. China imposed a tariff of 15% on Petroleum and LNG and a 10% tariff on crude oil, farm equipment, pick-up trucks and large-engine vehicles, coming from the US.
It also ordered to investigate anti-trust violations allegedly committed by US firm Google.
Besides, it also banned exports of lithium and tungsten to the US denying it an edge in batteries and semiconductor products.
Also Read: China’s Dilemma: Will Beijing Downplay Trade War, Buy More US Goods Or Escalate Tension?
This is not the first time that Washington and Beijing have got involved in a trade war, After Donald Trump became the US President for first time in 2016, he took similar steps, and imposed retaliatory tariffs on Chinese goods, which prompted the Asian giant to hit back.
Can India Exploit the US-China Trade War?
India was the fourth largest beneficiary of the trade diversion, consequent to the US-China trade war.
If media reports are to be believed, before the US announcement of imposing tariffs on Indian goods, exporters received higher orders amid fears of impending increases in tariffs.
Oxford Economics has found it its study that US trade rerouting has been beneficial for India, particularly in the large electronics market, as China’s share plummeted by 19 percentage points since 2017.
Can India Become Electronic Hub?
Electronic goods being exported to the US from India include mobile phones, consumer electronics, electronic components, computer hardware, and medical electronics.
After the US-China trade war began in 2017, US mobile handset giant Apple chose India as its manufacturing base for its iPhone production. It accounts for nearly two-thirds of all electronics exports in 2023.
India’s share in US electronics imports increased tenfold since 2017 and reached 2.1%.
US-India Trade Deficit
Other important exports to the US include pharmaceutical products, textiles, chemicals, precious metals, gems and jewellery, machinery, spices, and tea.
The US, particularly under the Donald Trump administration is peeved at the fact that it has a trade deficit with India. Washington had a trade deficit of $45.7 billion with India in 2022-23.
It increased to $36.8 billion in 2023-24. US-India bilateral trade crossed $190bn in 2023.
India Gives Concessions To US Firms
Analysts believe, partly under the US pressure and partly as a pre-emptive step, India reduced tariffs considerably in the Union Budget 2025-26.
Nirmala Sitharaman slashed tariffs on critical minerals like lead, zinc, cobalt powder, and 12 other minerals.
These minerals are part of the India-US bilateral partnership as envisaged in the Memorandum of Understanding on Critical Minerals signed in October 2024.
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The finance minister zeroed out import taxes on satellite ground installations, that will benefit the US exporters as India imported these goods worth $92m worth in 2023.
India also reduced tariffs on synthetic flavouring essences from 100% to 20% as it imported this worth $21m in 2024.
It slashed duties on fish hydrolysate for aquatic feed from 15% to 5% as New Delhi imported this item worth $35m last year.
Sitharaman also removed tariffs on select waste and scrap items, a category where US exports amounted to $2.5bn in 2024.
Will Donald Trump Spare India?
Analysts believe, considering the concessions given recently, Trump administration may spare India by imposing symbolic tariffs and it may not be as harsh as on China, Mexico and Canada.
It may allow Indian exporters to rapidly take the space vacated by China. India may once again emerge as a big benificiary of the impending US-China trade war.
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However, some experts believe India may continue to be the target of the ‘America First ‘ policy.
Agricultural market access remains one of the main sticking points as the US may ask India to open its market further.
Though New Delhi slashed tariffs on US-produced almonds, apples, chickpeas, lentils and walnuts in 2023, the US may ask for more.
However, India’s willingness to accept the deportation of undocumented Indian migrants in the US without pushing back may also mollify Washington considerably. The first batch of 205 illegal Indian immigrants has already arrived in Jalandhar city of Punjab.
Besides, India is an important member of Quad, a four-member bloc to counter China. Washington may keep also this in mind and decide not to push New Delhi beyond a limit.