What’s Standing Between India and the Gains from US-China Trade Tensions?

The long-standing trade differences between the US and China came to the forefront again after US President Donald Trump announced his "Liberation Day" tariffs on its trade partners earlier this month. Instead of seeking negotiation paths with the US, like its most trade partners, China decided to hit back at the US with similar levies.

As a result, tit-for-tat tariffs between the two nations have soared 145% on Chinese exports to the US and 125% on US exports to China. While China demanded respect and equality as prerequisites for any trade talks, Trump made it clear that he expects China to make the first move. This indicates a prolonged trade tension between the superpowers.

Amid this backdrop, India took a significant step by finalising the Terms of Reference on April 22 for reciprocal trade negotiations with the US—becoming the first country to do so after Trump's tariff announcement.

The move has sparked discussions: could this renewed US-China trade friction create a window of opportunity for India?

Opportunity With Caveats

If higher tariffs create challenges for Chinese goods from entering the US market, India definitely has a scope to step in and fill, if not replace, the gap. However, while this scenario looks encouraging on the surface, several deeper factors complicate the picture.

To begin with, the level of US-China trade far surpasses that of US-India trade. Goods trade between China and the US reached an estimated $582.4bn in 2024. The US imported a total $438.9bn worth of goods from China. China also maintained a staggering $295.4bn trade surplus with the US. As compared to this, India only exported $87.4bn goods in 2024 to the US. This shows China's dominance as a manufacturing hub.

On the other hand, India's trade deficit with China hit a record $99.2bn in March 2025. While India's exports to China declined nearly 3%, imports have grown rapidly and reached 25% driven by rising demand for electronics, EV batteries, solar cells and key industrial inputs—sectors where China enjoys an upper hand.

"China is India’s top supplier in all eight major industrial product categories. The PLI schemes are fueling import growth due to their heavy reliance on imported components," stated Ajay Srivastava, founder of New Delhi-based think tank Global Trade Research Initiative (GTRI). He also pointed out that India's falling numbers are more than a trade issue; it’s a competitiveness crisis.

Can India Rise to the Occasion?

Much of US-China trade grew after China's integration into the World Trade Organisation (WTO) in 2001, bringing lower prices to US consumers and higher profits for American corporations, according to the Council on Foreign Relations. With that in mind, any sudden disruption in Chinese supply chains could lead US retailers to seek alternatives and India hopes to be one of them.

However, there is also a significant gap to close. India had set an ambitious target to raise manufacturing’s share in GDP to 25% by 2025. Yet, as of 2024-25, it remains at just 14%. In contrast, manufacturing in China accounts for over a quarter of its GDP, illustrating the scale at which India would need to ramp up to play a similar role.

Challenges persist even in sectors where India has made notable progress. India became the world's second-largest smartphone producer. However, in a 2023 paper, Rahul Chauhan, Rohit Lamba and Raghuram Rajan pointed out that along with smartphone exports, imports of smartphone components had shot up, showing that India was still just an assembly hub. To evolve beyond assembly, India's research and development investment needs to grow substantially, which currently hovers between 0.6% and 0.7% of GDP—significantly lower than global peers.

Moreover, it is also important to take into consideration that the US might not be looking at permanent decoupling from China. On Tuesday, Trump already signalled that tariffs on China will not remain at 145% as it is "very high". Moreover, high tariffs could push up prices in the US and fuel inflation, adding pressure on policymakers to recalibrate their stance.

India must also address internal bottlenecks, especially in logistics and infrastructure. According to Horizon Industrial Park, India moves about 60% of its freight by road but poor roads, congested cities and weak port infrastructure slow things down. Traffic delays alone are estimated to cost the economy $22bn a year in fuel and lost productivity, it added.

If the US-China trade standoff continues, it could open some doors for India—especially in sectors like agriculture, the toy industry and others where global buyers are keen to diversify their sourcing. But it's not a free-for-all. With China formally warning countries against capitalising on its strained ties with the US and threatening to retaliate against those who do, India will need to tread carefully. The road ahead isn't just about grabbing short-term gains but step up as a credible alternative.