India may gain nothing from the US-China trade war, say experts

A few Indian goods, such as electronics and pharmaceuticals, may gain due to the tariff war between the US and China, but this would also increase India’s reliance on Chinese imports and leave room for the dumping of goods into the South Asian nation.

Trump 1.0 trade war

India was the sixth-largest trade gainer under US President Donald Trump’s previous term, increasing its exports to America to $36.8 billion between 2017 and 2023, driven by growth in electronics, pharmaceuticals, and engineering goods.

Countries like Mexico, Canada and Vietnam also greatly benefited from the China-US tariff war, it said.

Key contributors to India’s export growth during Trump 1.0 included smartphones and telecom equipment, which saw a $6.2 billion increase, accounting for 17.2 percent of the total rise between 2017 and 2023. Medicines contributed $4.5 billion while petroleum oils added $2.5 billion and solar cells accounted for $1.9 billion, GTRI noted.

Other exports, such as garments, motor vehicle parts, electric transformers, and transmission shafts, also showed significant growth.

However, India’s gains came with a catch. Take for instance, two key exports that saw a spike during Trump 1.0 – smartphones and solar cells for panels. Both are heavily reliant on imports from China to make the final product.

GTRI says that India needs to increase local value addition in exports, as many rely heavily on imported inputs. Even up to 70 percent of APIs for medicines are also imported from China, another big Indian export item to the US.

"The notion that India will gain due to the US imposing more tariffs on China is misplaced. Even during Trump 1.0, our largest exports to the US were smartphones and solar panels, which are almost entirely built on Chinese inputs," Srivastava says.

This suggests that while India's exports to the US may rise in these sectors, it could further deepen the country’s reliance on Chinese imports, widening an already large trade deficit that historically favours Beijing.

India’s trade deficit with China increased to $65.20 billion during April-November 2024, as exports fell 10.4 percent on-year, while imports from Beijing increased 9.4 percent during the same period.

Between FY20 and FY24, India's merchandise exports to the US rose by 46 percent, from $53.1 billion to $77.5 billion.

China trumped the US

While the US’s imports from China did decrease, America’s overall imports rose nearly ten times the drop from Beijing during 2017-2023.

GTRI adds that the trade war in fact boosted China’s global exports and increased US’s overall imports, as many countries supplied goods to America using Chinese inputs.

Between 2017 and 2023, China’s share in the overall US imports dropped to 14.39 percent from 22.45 percent.

Despite this decline, US’s overall merchandise imports grew by 31.51 percent, increasing from $2.31 trillion to $3.04 trillion. This represented a $763.2 billion increase in global imports—nearly 10 times the drop in imports from China, according to an analysis by GTRI.

Meanwhile, China’s global exports surged by $1.1 trillion, growing from $2.3 trillion to $3.4 trillion during 2017 and 2023, offsetting its losses in the US market.

This means that while higher tariffs reduced direct Chinese imports to the US, they did not lower America’s overall reliance on foreign goods.

Instead, trade shifted to other countries, leaving the US manufacturing and job creation largely unaffected.

‘No China-plus-one without China’

The common narrative is that the US's hyper-focus on the China-plus-one strategy could benefit India in the long run, as US companies could diversify their supply chains to the South Asian nation.

But as Srivastava says, for India, "there is no China-plus-one without China."

Scores of Indian companies are heavily dependent on Chinese components for their finished goods. This means that China’s exports to the US would continue to rise, albeit through other destinations such as Vietnam and India.

Naresh Gupta, president of Indochina Chamber of Commerce, told Moneycontrol that several sectors of India’s economy, from automobiles to green energy, are dependent on Chinese imports.

Gupta added that other critical sectors like engineering goods, solar modules and construction also rely heavily on inputs from Beijing.

Even for India’s engineering goods, the top export item to the US, with outbound shipments seen at $12.12 billion during April-November of 2024-25, China plays a key role.

Last month Tata Hitachi Managing Director Sandeep Singh said Chinese players were benefiting more from India’s infrastructure development than Indian construction equipment manufacturers.

"The Chinese penetration in the excavator segment has intensified in recent months, reaching about 20-22 percent. This is very high. Five years back, it was not even 10 percent,” Singh said, adding that Chinese penetration in other categories of the construction equipment sector has also witnessed a surge.

As BEML’s, chairman and managing director Shantanu Roy noted last month, with the huge price difference between India and China, the former ends up losing out.

“When it comes to construction equipment, the price difference with the Chinese is huge. And the construction sector is mostly private companies. So, they will go with the price or leasing of equipment. So, the interests of companies such as BEML have definitely been hurt,” Roy said in the company's post earning call in January.

The key to India truly benefiting from the second round of the US-China trade war lies in reducing its reliance on imports from Beijing, experts say.

As GTRI’s Srivastava puts it, "It is wrong to think that India will benefit in electronics exports with the US raising tariffs on Beijing, when it cannot survive a single hour without imports from China."