 "US-China trade war: How India can turn crisis into opportunity")
The White House clarified that the levies on Chinese imports stand at 145 per cent—the 125 per cent tariff announced by President Donald Trump is in addition to the two hikes of 10 per cent post-Trump taking office. China’s unflinching approach has made them offensive rather than defensive in this trade war. Beijing has vowed to fight Washington tooth and nail.
The Trump administration’s aggressive tariffs are aimed at balancing the trade deficit with China vis-à-vis negotiating tariffs imposed by China on imports from America. In 2023, China exported $463 billion in goods and services to the US, whereas the US export to China was $199 billion. The US imports from China include mobile phones worth $64.1, computers and accessories worth $50.5, electric and industrial equipment worth $46.2, sporting and gaming goods worth $30.8, car parts worth $15.5, etc (all in billions), and exports from the US to China include soybeans worth $12.8, aircraft and parts worth $11.5, pharmaceuticals worth $10, semiconductors worth $99, industrial machines worth $7.4, crude oil and liquid and natural gases worth $12.1, etc (all in billions). The consequential trade deficit between the US and China was $295 billion.
Interestingly, as per the latest news, the Trump administration has exempted smartphones, computers and other electronics from its ‘reciprocal’ tariffs—apparently to lessen the cost impact on American consumers for a number of popular high-tech products.
The strategic economic collision of Eagle and Dragon will make the tremors ripple far and wide. The two economic giants are yet again locked in a bruising trade war that threatens global markets. India is not at ‘war’, but it is standing close enough to face the heat. India being cautiously positioned amidst the US-China trade tensions faces both risks and opportunities.
Challenges for Indian Industries:
The manufacturing sector of India, particularly electronics, may face vulnerability due to its heavy reliance on Chinese goods. This may drive up the price of consumer goods due to supply chain disruptions. India, despite being the global leader in pharmaceuticals, heavily relies on China for raw materials. As much as 70 per cent of the raw material for the pharmaceutical industry of India, including antibiotics, vitamins, and paracetamol, comes from China. The automakers and steel producers of India may also face supply chain pressure due to potential Chinese dumping threatening local prices. The China-facing trade barriers in the US and the redirected exports to India could flood the Indian markets with cheap goods in the electronics, steel, and textile sectors, disrupting supply chains.
Impact Shorts
More ShortsChina is the world’s largest exporter of steel, amounting to $88.3 billion. Due to the increased tariffs of the US, India could be the prime target for dumping steel. The steel dumping would hurt domestic steel giants like Tata Steel and JSW. The disruptions in the supply of Chinese lithium-ion batteries could delay India’s green mobility transition. This would be the time to test the enforcement of anti-dumping duties on Chinese steel (2023). The redirections of cheap Chinese textiles to India would threaten India’s textile hubs like Tripura and Surat.
Opportunities for India Amid the US-China Trade War:
The escalation of the trade tensions between the US and China could bring significant gains to some sectors of India. The reduced reliance of US companies on Chinese goods makes India an attractive alternative. India is a leading supplier of generic drugs, accounting for around 20 per cent of the global supply of generic medicines. The American companies withdrawing from China would prefer India as their production hub due to the competitive labour cost compared to China.
The US restriction on semiconductor exports to China would push firms to invest in India. In 2023 AMD has committed to investing $400 million in India, and Applied Materials, Inc., has announced its intention to build a collaborative engineering centre in Bangalore, India. This could mirror India’s growth during the previous trade dispute between both economic giants. Similarly, if China reduces importing US goods, India could step in to supply commodities like soybeans and cotton to China. However, such gains could be limited and uncertain.
Geopolitical and Strategic Implications:
The US-China trade war has made India indispensable for both countries. Xi Jinping’s ‘dragon-elephant tango’ message to President Draupadi Murmu reflects a strategic but friendly gesture from China, desiring a partnership of mutual achievement. India and the US, through a technological partnership in the form of iCET (India-US Critical and Emerging Technology), aim to enhance national security and advance economic development. India will have to walk a tightrope, maintaining strategic balance. This would also be a time of test for India to reflect its strategic posturing.
If the tariff standoff remains consistent, taking a long-term goal, the concern of electronics import reliance could be addressed with faster PLI (Production Linked Incentive) scheme execution. The Pharma API dependence could be reduced by boosting domestic API (Active Pharmaceutical Ingredient) production via PLI. The issue of textile, steel, and auto part dumping would have to be tackled by stricter anti-dumping duties and local sourcing mandates vis-à-vis incentivising synthetic fibre production in India.
India is at a crossroads; it can either reduce supply chain dependency on China by taking critical policy action for the next 2-3 years or face prolonged supply chain pain. The strategic economic collision of Eagle and Dragon does not appear to be cooling down soon, and the countries standing close are destined to face the heat. Therefore, Prime Minister Narendra Modi’s mantra of ‘Aapda ko avsar mein badalna’ (turning disaster into opportunity), is the guiding light in today’s volatile geopolitical landscape.
Pranjal Chaturvedi is a Doctoral Research Fellow at Bennett University, and Suhasini is an Assistant Professor at the School of Law at Bennett University (Times of India, Group). The views expressed in the above piece are personal and solely those of the authors. They do not necessarily reflect Firstpost’s views.
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