Can India truly seize the moment and turn the US-China tariff war into a strategic advantage?

For the past over a week, the world economy is grappling with turbulence and turmoil. There is uncertainty all over the world because of the so-called "liberation day" announcement by Mr. Trump. There is an announcement of tariffs and their halt barring a few exceptions. China imposed retaliatory tariffs against the imposed tariffs, thus kicking off the trade war.

The Indian economy is driven by and large by internal demand, and exports contribute to a little over 18% of the GDP. While we are facing a few headwinds in the global trade, we are insulated from these developments as far as the economy is concerned. The performance of India’s exports—$774 billion to $850 billion—grew roughly 6%. But the important challenge is to maintain the growth momentum. In the services sector, we are clocking double-digit growth. In the current scenario, the exports may be benefitted at the macro level, but the reciprocal tariffs will plant difficulties. Since China is, of course, off the radar and Vietnam has saturated, the attention will come to India—all the more reason we encash this opportunity.

Is it really, in contrast to other countries, that the picture for India is not that gloomy?

If we look into exports, some challenges in some sectors of labour-intensive fields have been faced. For example, gems and jewellery have taken a hit due to lower global sentiments. But in the sectors of electronics, technology, machinery, pharmaceuticals, and medical equipment, we are clocking double-digit growth.

We may not be directly in the line of the US-China trade war, but we remain vulnerable due to the unpredictability and volatility of the situation. There may not be much impact on trade, but there will be an impact on markets and currency. Due to large DII (Domestic Institutional Investment), Indian markets are quite insulated. In the long run, if we plan properly, India can be a huge gainer from these volatile conditions. Due to these tariffs, China has been hit badly. China’s exports to the US are roughly around $500 billion. So we tend to gain—as the market share of China reduces in the US market, we have a large space to cover.

Trump’s surprise decision to pause the tariffs has compelled the investors to reassess their positions and is contributing to the dollar’s decline. This has lifted investor sentiments to some extent in an otherwise gloomy environment. Maybe Mr. Trump has been a little perplexed by the US robust bond market. There has been a little discouraging trend in the bond market. If a country imposes tariffs, the consumers also have to share a fair burden of the cost. The US is looking for negotiated settlements with countries as the interested toll has increased to 75 from 50. But we are uncertain that maybe they will or will not get further deference, and the volatility of the market still remains to continue.

The Indian manufacturing sector heavily relies on China, especially on electronics. Will the present turbulence affect this front of our economy? We may assume that China may exit from the US market, as a 145% tariff is probably not possible. We can expect that China can reduce the price of parts and components and become aggressive in other countries. So for India, challenges for exports in other countries may arise. Probably reducing the trade deficit with the US will be beneficial, and the imports from the US will not be subjected to higher tariffs.

The US is tightening exports of semiconductors to China, targeting high-performance chips that power AI and advanced computing. In response, China is threatening to cut off exports of rare earth elements that are so essential for EVs, smartphones, and missile-guided systems. India is trying to build its own chip manufacturing capacity. How will this affect India's chip manufacturing capacity? The companies that are making chips are not mostly from China but from the US, Taiwan, or Japan—not that China alone has that critical mineral, though China has one of the largest depositories of the resources. We can look for diversifying all the treatment minerals. So, there might not be much damage to India’s semiconductor field.