Why India must stay firm against US pressure and wary of China’s charm

A look at the impact of US tariffs on the Indian economy and some specific sectors.

(Sanghnomics is a weekly column that tracks down and demystifies the economic world view of Rashtriya Swayamsevak Sangh (RSS) and organisations inspired by its ideology.)

The tariff war launched by the Trump administration is set to accelerate the reordering of the global economic architecture. At the global level, the effects of this tariff war are already being felt through disruptions in supply chains and interruptions in trade flows. Nations across continents are being compelled to rethink their economic strategies — and India is no exception.

Given that the Trump administration has targeted both China and India -- two major global economies that are also strategic rivals -- it will be interesting to see whether they can move closer and formulate a joint strategy. In this context, the most significant question that needs to be answered is: How trustworthy is China, and has it taken any measures in the recent past that might narrow the trust deficit it has created through its anti-India stance? This is a much larger debate, which we shall come to later, but first, let us look at the impact of US tariffs on the Indian economy and some specific sectors.

Tariff Impact

Looking at specific sectors, one of the biggest challenges could be for micro, small and medium enterprises (MSMEs) in industries such as textiles, leather, and auto-components. Margins are already slim in these sectors — particularly for MSMEs — and a tariff hike could potentially wipe out profits.

According to a Crisil report, “The textiles, gems and jewellery, and seafood industries — which account for 25% of India’s total exports to the US — are likely to be the most affected. MSMEs have more than 70% share in these sectors and will be hit hard. Another sector likely to face the heat is chemicals, where MSMEs have a 40% share.”

Many of the sectors hit by the unreasonable US tariffs are also labour-intensive.

According to official statistics, “The textile industry is one of the largest sources of employment generation in the country, with over 45 million people employed directly — including a large number of women and members of the rural population.”

There are more than four million workers-skilled, semiskilled and unskilled in India’s gems and jewellery Industry.  And India’s fisheries sector that relies heavily on the seafood industry supports the livelihoods of approximately 28 million Indians. More than 75% of the workforce in the seafood processing sector in India are women.

Diversification is Key

The impact of the tariff war can be mitigated by diversifying India’s exports. The Swadeshi Jagaran Manch (SJM) has strongly backed the Modi government’s decision to stay firm in the face of US tariffs, suggesting that India can turn this adversity into an opportunity through greater export diversification.

According to Ashwani Mahajan, National Co-Convener, SJM: “India should not buckle down before the US. Instead, I think this crisis will only encourage us to diversify our markets and become more and more self-reliant... India is not the same India of 10–12 years ago. This is a new India. We urge the government to remain firm and not buckle down, and ultimately, we will emerge as winners.”

Let us now look at some possibilities for diversification in the sectors currently affected.

The India–UK Free Trade Agreement, clinched recently, expected to more than double is India’s gems and jewellery exports to the UK, reaching ₹21,183 crore ($2.5 billion) within the next two years. Under the India–UK Comprehensive Economic and Trade Agreement (CETA), all fish and fisheries commodities falling under the UK tariff schedule categories marked ‘A’ now enjoy 100% duty-free access from the date the agreement comes into force. India’s current share in the UK’s $5.4 billion seafood import market is just 2.25%. With CETA now in effect, industry estimates project a 70% surge in marine exports to the UK in the coming years, according to Union Ministry of Fisheries, Animal Husbandry & Dairying.

India can also mitigate the impact of US tariffs on its textile sector by expanding exports to the UK, European Union, West Asia, Latin America, and East Asia. A strategic shift towards sustainable textiles would further support this effort. Additionally, India can leverage various trade deals with other countries. There is also huge domestic demand in the textiles sector, which can help absorb the ‘tariff ripples’. A potential reduction in Goods and Services Tax (GST) on textiles and related goods would further strengthen domestic consumption.

S&P Global Ratings has also observed that the macroeconomic impact of the tariff hike will be cushioned by the large size of India’s domestic market.

Cautious Approach on China

Meanwhile, India must take a cautious approach when it comes to Sino-Indian relations. The Rashtriya Swayamsevak Sangh (RSS), the ideological fountainhead of the ruling Bharatiya Janata Party (BJP), has always been wary of China. The SJM, an RSS-inspired organisation, has repeatedly called for a boycott of Chinese goods and supported the Modi government’s successful initiatives to revive local industries — such as toys, silk sarees, and electronics — that had been crushed by Chinese dumping practices prior to 2014.

It is well known that China cannot be trusted, as it continues to run disinformation campaigns against India, despite its recent diplomatic overtures. A recent example is China’s deliberate misrepresentation of India’s position on Taiwan, immediately after the Chinese Foreign Minister’s visit to New Delhi. China claimed that India had endorsed its position on Taiwan, prompting the Indian government to issue a clarification stating that India maintains relations with Taiwan in the areas of economy, technology, and culture — and that these would continue.

Therefore, in the coming days, while there may be handshakes and meetings between Indian and Chinese leaders, one should not expect a revival of ‘Hindi-Chini Bhai Bhai’.

Earlier Sanghnomics columns can be read here.