Trump 'tariffies' world trade, but China India’s real threat

The entire focus of the world is on what US President Donald Trump will wake up and do next. His tariff tantrums have already sent global trade into turmoil with no one daring to predict what is likely to happen next. Trump’s latest has been to increase the tariffs on China beyong 100%, when Beijing reacted to his first burst with levies and trade restrictions of their own. 

India has been silently watching so far, letting the US president speak about what New Delhi has done, or should be doing, which is to cut down on duties and tariffs on good and services from America. Though there have not been any clear directional statements from the government, it has indicated that tariffs will be cut to reduce the drag that Trump has caused. All this while a Bilateral Trade Agreement (BTA) is being negotiation. 

The Indian markets though have been far more expressive in their opinion about the new tariff regime imposed on India and the rest of the world. A wild ride has begun at a time when markets were already begun to wane after the end-of-last-year highs. The focus of every major economy is to try and figure out what the US will do and make the best ‘deal’ out of it, by either retaliating or by making their peace, as India has done.

But is the real threat to the Indian economy from the US and Trump’s tariffs? Or is it the old frenemy: China?

India has a surplus trade balance with the US. Which simply means we export more to them than we import from them. With China, it is the opposite, and the gap is huge because it remains India’s largest trading partner. India’s imports from China in 2023-24 were close to $120 billion, with a deficit of $85 billion (India exports to China were at $35 billion). China’s imports into India have grown despite the post-Galwan breakdown in ties as well as several policy and political statements as well as much-publicised ‘boycotts’ of Chinese goods. Of late, there has been an equally public reachout to Beijing by the Modi government. The Chinese too, after Trump's repeated tariff announcements, told India to 'stand together' in the face of 'tariff abuse'.

China & Global Trade

As of now, China’s share in global is more than 32%. That number is more than the share of some of the largest Asian and European economies combined. China’s share is going to continue to grow, simply because the CCP has commanded the country’s government- run banks to make available finances for industry and manufacture. Reports suggest that close to $2 trillion has been given out to industry by the banks, mainly for either new, high-tech factories or to enhance productivity in existing ones. All these factories are (and will be) producing goods for exports. (To ease the uncertainty and create a guardrail against slowing exports, the RBI has now reduced a key interest rate by 0.25% in the hope that more liquidity will be available for Indian manufacturing as well.)The Chinese budget announced on March 5, 2025, further reflects this priority. It included $100 billion allocated for investments in infrastructure, such as ports, which directly aids exporters, as well as a new program to upgrade manufacturing technology across 20 cities. This push to exports also comes after a housing market crash and slowing consumer demands, all of which are creating a drag for the country’s economy.

This focus on exports is what is allowing Beijing to retaliate against Trump’s tariffs. 

Geopolitical Impact

But there is also a geo-economic impact of this policy, one that India needs to be aware and wary of in the short and medium term. The figures quoted above demonstrate India’s dependence on Chinese imports. India has tried to counter it with the Make In India programme and tried to cash in on the China+1 strategy after the Covid pandemic disrupted global supply chains and also set off geopolitical tensions. To be clear, India has found limited success in either endeavour.

India’s manufacturing output at $500 billion is one-tenth of China’s, which is close to $5 trillion. This is gap also reflected in the differences in sectors that the two countries work on. China is today a global rival, if not leader, on the top of end of cutting-edge technology. India is more focussed on IT, textiles and electronics. But there is very little to rival China with. 

In the current situation of global uncertainty, India’s position is also very unsure, despite being the fastest growing major economy in the world. Trump’s erratic economic policies are yet to fully play out and India could yet be spared the sharp end of the stick. But China with its surge in exports manufacturing, poised to position itself as the ‘friend of the world’ – a position which the US is rapidly vacating – will also flood the world market with its good. 

‘The Tsunami is Coming’, ran a headline in the New York Times earlier this week, detailing China’s push for export dominance. India needs to keep its lifeboats dry and ready for that.