India and China’s similar export profiles mean slim trade benefits from a diplomatic reset

Prime Minister Narendra Modi and Chinese President Xi Jinping

A thaw in the bilateral relations between India and China is being seen as a strong geopolitical signal, especially at a time when the United States has imposed steeper tariffs and ratcheted up the rhetoric over purchase of Russian crude oil. However, some experts believe India New Delhi has little to gain in trade from closer ties with Beijing, given their similar export profiles.

The US has been the top buyer of Indian goods, with exports touching $33.53 billion during the April-July period this fiscal, but exports to China have been much lower at $5.76 billion during the same period.

Data from United States Trade Representative shows that America bought goods worth $438.7 billion in 2024, up 2.7 percent from 2023, but India’s exports to US totalled $87.3 billion, growing by 4.5 percent compared to 2023.

India and China share a similar export profile, except for diamonds, pharmaceuticals and petroleum products. "Two out of three of these items are tariff-free so far (pharmaceuticals and petroleum), so we can continue shipping goods to the US. Meanwhile, Beijing does not have demand for diamonds," Ajay Srivastava, founder, Global Trade Research Initiative (GTRI) said.

The US has doubled its tariff on India to 50 percent on most Indian goods from August 27, but key exports such as pharmaceuticals, petroleum and electronic goods are exempted from steeper duties, for now. This makes up roughly $28 billion of New Delhi’s total outbound shipment to American shores at $86.51 billion in FY25.

The US and China have extended a truce to pause steeper tariffs till November 10, which have prevented duties on Chinese goods from jumping to 145 percent. This pause has locked tariff on Chinese imports at 30 percent as of now while China has kept duties on American goods at 10 percent.

Steeper US tariffs on India especially hurts labour-intensive sectors such as textiles, gems and jewellery, leather, footwear and marine products. However, experts do not see China as a viable export destination, given that Beijing too makes most of these products and sells it to America.

Both China and India produce garments and exports to the world with the US being one of the top buyers from both nations.

India’s textile exports to the US stood at nearly $11 billion in FY25, of which ready-made garments made up for the largest share at $5.3 billion while its shipment to China in this category were at a mere $59.7 million.

GTRI’s Ajay Srivastava added that except for pharmaceutical and petroleum, China too sells the same products to US that India exports. “We cannot sell garments to China because they make the same product. It is too competitive an export profile,” Ajay Srivastava said.

Engineering Exports Promotion Council’s chairman Pankaj Chadha also pointed out that the US is also a better paying market. “…absorption of Indian exports for China is difficult, nobody can pay that kind of price,” Chadha added.

This is crucial, given that while China is India’s top import source nation, as an export destination it comes fourth.

The trade deficit or the difference between imports and exports between India and China expanded to $99.2 billion in FY25 in Beijing’s favour, as India’s inbound shipment soared. On the other hand, the trade deficit between India and the US stood at nearly $41 billion in FY25 in New Delhi’s favour, as exports rose faster than imports.

Now, after the tariffs, India has been attempting to diversify exports to various markets from Africa to Australia in a bid to offset the steep levy imposed by Donald Trump.

To India’s comfort, China has promised to address New Delhi’s key concerns related to supply of fertilisers, rare earths and tunnel boring machines in a major relief for the domestic industry. EEPC’s Chadha has highlighted this and said that beyond exports, there are gains from improved relations with China.