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| Examining the US-China Trade War in Depth Will India Benefit? |
The US-China trade war, one of the most significant economic conflicts of the 21st century, has reshaped global trade dynamics since its escalation in 2018. Rooted in decades of simmering tensions over trade imbalances, intellectual property theft, and geopolitical rivalry, this standoff between the world’s two largest economies has reverberated across continents, disrupting supply chains and forcing nations to reassess their economic strategies. As tariffs piled up and rhetoric sharpened, a key question emerged: could third-party nations like India capitalize on this rift? This article explores the origins, evolution, and current state of the US-China trade war, while assessing whether India stands to gain from the fallout.
The Genesis of the Trade War
The seeds of the US-China trade conflict were sown long before tariffs became front-page news. For decades, the United States has run a massive trade deficit with China—reaching $419 billion in 2018 alone, according to the US Census Bureau. American policymakers grew increasingly frustrated with what they saw as unfair trade practices: China’s state subsidies, forced technology transfers, and lax enforcement of intellectual property rights. Meanwhile, China viewed US criticism as an attempt to suppress its rise as a global economic power.
The tipping point came under President Donald Trump, who campaigned on a platform of economic nationalism. In March 2018, the Trump administration imposed tariffs on steel and aluminum imports, citing national security concerns under Section 232 of the Trade Expansion Act of 1962. China, a major exporter of these metals, retaliated with tariffs on US goods like soybeans and pork. By July 2018, the US escalated the conflict, slapping 25% tariffs on $34 billion worth of Chinese goods, targeting products tied to China’s “Made in China 2025” industrial plan. China hit back with equivalent measures, and the tit-for-tat spiral began.
Over the next two years, the US imposed tariffs on over $550 billion in Chinese goods, while China retaliated against $185 billion in US exports. Negotiations yielded a “Phase One” trade deal in January 2020, under which China pledged to buy an additional $200 billion in US goods and address some IP concerns. However, compliance has been spotty, and tensions persist into 2025 under the Biden administration, albeit with a shift toward strategic competition over outright tariff wars.
Economic Fallout and Global Ripples
The trade war’s impact has been profound. For the US, tariffs raised costs for consumers and manufacturers reliant on Chinese inputs, contributing to inflation pressures. A 2021 study by the National Bureau of Economic Research estimated that US consumers bore over 90% of the tariff burden, costing households an average of $419 annually. American farmers, hit by Chinese retaliation, required billions in federal subsidies to stay afloat.
China, meanwhile, faced its own challenges. Export growth slowed, and manufacturers began relocating to Southeast Asia to dodge tariffs—a phenomenon dubbed “supply chain decoupling.” Yet China’s economy proved resilient, buoyed by domestic stimulus and a pivot to other markets like the European Union and Africa. The trade war also accelerated Beijing’s push for self-reliance in critical sectors like semiconductors and renewable energy.
Globally, the conflict disrupted supply chains already strained by the COVID-19 pandemic. Companies diversified away from China, with Vietnam, Mexico, and Taiwan emerging as beneficiaries. The International Monetary Fund warned that prolonged trade tensions could shave 0.8% off global GDP by 2020—a prediction that underscored the stakes for emerging economies watching from the sidelines.
India’s Position in the Global Economy
Enter India, the world’s fifth-largest economy as of 2025, with a GDP surpassing $3.5 trillion (nominal). Long overshadowed by China’s manufacturing dominance, India has eyed the trade war as a chance to assert itself. With a young workforce, a growing tech sector, and ambitious policies like “Make in India,” the country has the ingredients to attract businesses fleeing China’s tariff-laden shores. But can India truly capitalize on this opportunity?
India’s economic strengths are clear. Its labor costs remain competitive—factory wages average $0.70 per hour, compared to $2.50 in China, per Oxford Economics. The country boasts a robust IT services sector, a burgeoning startup ecosystem, and proximity to key shipping lanes. Since 2014, Prime Minister Narendra Modi’s government has pushed manufacturing through incentives like the Production Linked Incentive (PLI) scheme, targeting sectors from electronics to pharmaceuticals.
Yet challenges abound. India’s manufacturing share of GDP has stagnated at 13-15%, far below China’s 27%. Infrastructure bottlenecks—think congested ports and unreliable power grids—deter investors. The World Bank’s Ease of Doing Business Index ranks India 63rd globally (2020 data), trailing competitors like Vietnam (70th but rising fast). Regulatory red tape and land acquisition woes further complicate the picture.
Opportunities for India in the Trade War
The US-China trade war has created tangible openings for India. As American and Chinese firms seek alternatives, India has seen gains in specific sectors:
1.] Electronics and Smartphones: Companies like Apple, Samsung, and Foxconn have expanded operations in India. By 2024, India produced 20% of Apple’s global iPhone supply, up from near-zero in 2018. The PLI scheme, offering 4-6% cash incentives, has lured manufacturers, with exports of electronics surging to $25 billion in FY 2023-24.
2.] Textiles and Apparel: China’s $150 billion textile export market faced US tariffs, pushing buyers to India, Bangladesh, and Vietnam. India’s textile exports grew 15% annually since 2020, reaching $44 billion in 2023, per the Ministry of Textiles.
3.] Pharmaceuticals: As the “pharmacy of the world,” India supplies 40% of US generic drugs. With China’s API (active pharmaceutical ingredient) exports under scrutiny, India’s API production rose 20% between 2020 and 2024, bolstered by a $1.3 billion government push.
4.] Trade Diversification: India’s trade with the US has deepened, with bilateral trade hitting $190 billion in 2023, up from $146 billion in 2019. The US has become India’s top export market, overtaking China, signaling a strategic realignment.
Beyond economics, India’s geopolitical stance—non-aligned yet increasingly cozy with the US via the Quad (with Japan and Australia)—positions it as a stable partner amid US-China friction. Initiatives like the Indo-Pacific Economic Framework (IPEF) offer India a seat at the table in shaping post-trade-war rules.
Hurdles to India’s Gains
Despite these wins, India’s path to trade war dividends is fraught with obstacles. First, it faces fierce competition from Southeast Asia. Vietnam’s exports to the US soared 50% between 2018 and 2023, reaching $114 billion, thanks to its proximity to China, free trade agreements, and nimble policymaking. Taiwan and Mexico have also siphoned manufacturing away from China faster than India.
Second, India’s export basket remains narrow. Over 70% of its goods exports are low-to-medium value—textiles, gems, and chemicals—lacking the high-tech heft of China or South Korea. Scaling up in advanced manufacturing requires years of investment in skills and R&D, areas where India lags.
Third, domestic policy missteps could stall progress. High tariffs (India’s average applied tariff rate is 17%, versus China’s 7.5%) and a reluctance to join mega-trade deals like the RCEP deter multinationals seeking seamless market access. The 2020 labor law reforms aimed to boost flexibility, but uneven implementation across states has muted their impact.
Finally, global uncertainties loom large. A US-China détente—however unlikely in 2025—could slow the exodus of firms from China. Recession fears in the West or a resurgence of protectionism might shrink demand for Indian exports altogether.
Will India Emerge a Winner?
So, will India gain from the US-China trade war? The answer is a qualified yes. The conflict has undeniably opened doors, and India has seized some—like electronics and pharma—with gusto. Goldman Sachs predicts India could add $500 billion to its GDP by 2030 if it captures 10% of China’s redirected trade, a plausible if ambitious target. The Confederation of Indian Industry (CII) estimates that every $10 billion in export growth creates 1 million jobs, a boon for India’s 550 million-strong workforce.
Yet the gains are not guaranteed. India’s success hinges on execution—streamlining regulations, upgrading infrastructure, and doubling down on skilled manufacturing. Vietnam’s rise shows how quickly competitors can outpace a hesitant giant. Moreover, the trade war’s endgame remains unclear. If the US and China pivot to a tech Cold War—focused on semiconductors and AI—India’s current strengths may not align with future demand.
Conclusion
The US-China trade war, now stretching into its seventh year as of February 2025, has upended the global economic order. For India, it’s a rare chance to step out of China’s shadow and claim a larger slice of the trade pie. Early wins in smartphones, textiles, and pharmaceuticals signal potential, but structural weaknesses and external rivals temper optimism. India’s ability to gain meaningfully will depend less on the trade war itself and more on its own reforms and agility. As the world watches this economic chess match, India must play its pieces wisely—or risk being a bystander in a game it could have won.
