US–China Trade War Could Benefit India

U.S. President Donald Trump shakes hands with Indian Prime Minister Narendra Modi during a meeting in the Oval Office at the White House in Washington on Feb. 13, 2025. Jim Watson/AFP via Getty Images

Commentary

As the Trump administration’s unprecedented reciprocal tariffs reshape global trade, India is seizing the moment, engaging in talks with the United States over trade and positioning itself as a manufacturing alternative to a tariff-battered China.

With a resilient service-led economy and cooperative trade stance, India is gaining ground while China grapples with economic imbalances.

It’s noteworthy that Apple shipped nearly $2 billion worth of iPhones from India to the United States in March. The surge reflects an almost 60 percent year-on-year increase in iPhone production at Apple’s Indian assembly facilities. It also marks the company’s accelerated shift away from Chinese manufacturing and toward diversifying its supply chain.

India’s Opportunity

As U.S. trading partners deal with the Trump administration’s reciprocal tariffs, Indian Minister of Commerce and Industry Piyush Goyal said at a recent event in Mumbai that the situation is “an opportunity of a lifetime” for India.

After Trump’s election victory in November last year, the Modi administration began preparing for major geopolitical and trade shifts. New Delhi aims to position itself as a manufacturing alternative to China if the U.S.–China trade dispute escalates.

In February, Indian Prime Minister Narendra Modi made an official visit to the United States. Trump and Modi unveiled the “U.S.-India COMPACT,” an initiative to boost military, trade, and technology cooperation. The plan aims for tangible results this year, signaling a strong, mutually beneficial partnership.

After the meeting, India lowered its tariffs on American agricultural products. In addition, the two sides have launched initial trade talks and plan to finalize core terms by the end of 2025, aiming to bring bilateral trade to $500 billion by 2030.

In 2024, bilateral trade between the two countries reached around $129 billion, with India enjoying a surplus of $45.7 billion, roughly one-tenth of China’s trade surplus with the United States that same year.

When Trump’s universal reciprocal tariffs policy took effect on April 2—imposing a 26 percent tariff on Indian goods—India decided not to retaliate.

In reality, even with a 26 percent reciprocal tariff, the impact on India’s economy is expected to be limited. According to analysts at Citi Research, India could lose an estimated $7 billion annually due to the tariff exchange, with sectors like metals, chemicals, and jewelry taking the hardest hit. Pharmaceuticals, automotive, and food exports also face some risk. Experts, including economists at Goldman Sachs, forecast that the tariffs may slow India’s economic growth this fiscal year by 20 to 40 basis points to 6.1 percent.

A vendor selling lemon soda takes shelter under a tree on a hot summer day along a road in Amritsar, India, on April 19, 2025. Narinder Nanu/AFP via Getty Images

The Chinese communist regime, on the contrary, has vowed to retaliate by increasing tariffs on U.S. goods to 125 percent, disregarding the fact that some Chinese products face tariffs as high as 245 percent due to the combined effect of reciprocal levies, tariffs imposed in response to fentanyl precursors from China, and Section 301 tariffs imposed during both the Trump and Biden administrations.

The unprecedented tariffs on Chinese goods are a major blow to China’s exports and broader economy. Analysts widely expect that not only will bilateral trade between the United States and China be cut in half, but China’s overall exports will also decline sharply, potentially dragging down its 2025 GDP growth by 1.5 to 2.5 percentage points. Beijing’s 5 percent annual growth target now appears out of reach.

China Versus India

China faces economic challenges that extend beyond tariffs. A significant factor contributing to the severity of the tariff impact is the structural imbalance within its economy. In comparison to India, China relies more heavily on exports, making it more susceptible to trade shocks.

According to Shen Jianguang, vice president of China’s National Statistical Society, net exports accounted for 30.3 percent of China’s GDP growth in 2024, the highest since 1998. Of its total 5 percent annual growth, 1.52 percentage points came from trade. Its trade dependence ratio remains high at around one-third of GDP.

However, China’s export strength lies mostly in goods. Last year, it posted a record of nearly $1 trillion in goods trade surplus, surpassing those of the United States, Japan, and Germany. But in services, the picture is different. While total services trade topped $1 trillion for the first time, China ran a $161 billion deficit.

This reveals a critical imbalance: China’s services sector remains underdeveloped, making its economy less flexible and more exposed to global shifts.

India, by contrast, follows a different model. Its trade dependence is significantly lower than China’s. In 2020, India’s total trade dependence was 24.28 percent, with exports accounting for 10.35 percent and imports for 13.83 percent of GDP, according to the World Bank.

India’s services exports have been experiencing rapid growth, resulting in a significant surplus. In the 2023–24 fiscal year, the value of India’s goods exports increased to $437.1 billion, up from $314 billion in 2013–14; services exports also soared to $341.1 billion in 2023–24, compared to $152 billion in 2013–14. The latest official figures show India posted a record services trade surplus of $17.91 billion in March, attributed to sectors such as information technology and finance.

Traditional economic development usually follows a pattern in which a country transitions from agriculture to industry, and then, in the later stages of industrialization, experiences growth in the service sector. However, India has seemingly bypassed extensive industrialization and moved directly toward a service-led economy—an unusual path for a developing country.

India’s Consumption Strength Outpaces China’s

China and India are the only countries with populations exceeding 1 billion. As of 2024, China’s GDP ($18.27 trillion) and per capita GDP ($17,758) remain far ahead of India’s (GDP of $3.89 trillion and per capita GDP of $3,567). However, China’s investment-driven growth model is losing momentum, despite efforts to shift toward a consumption-driven model. China’s consumption rate lags behind that of Western nations and India, where domestic spending now plays a significantly larger role in driving economic growth.

Workers check machines at a factory that produces silk cloth in Fuyang, in eastern Anhui Province, China, on April 16, 2025. STR/AFP via Getty Images

For example, according to World Bank data, in 2023, household final consumption expenditure accounted for 70.7 percent of India’s GDP, compared to just 55.6 percent in China.

Household final consumption expenditure refers to the total amount people spend on goods and services—such as food, clothing, cars, doctor visits, and haircuts—and is a crucial indicator of a country’s economy.

What accounts for the gap? I believe a key reason is the significant difference between the two political systems.

India is the world’s largest democracy. China, by contrast, is the largest communist regime. The Chinese Communist Party (CCP) has maintained power through internal repression and aggressive actions worldwide. The CCP prioritizes state control and geopolitical influence over public welfare and education. The Party’s rule has also led to deep inequality, widespread poverty, weak domestic demand, and, ultimately, growing signs of economic instability.

India, for all its challenges, has avoided the kind of catastrophic events seen in China’s modern history, such as the Great Famine (from 1958 to 1961) and the Cultural Revolution (from 1966 to 1976). Since New Delhi’s 1991 market reforms—13 years behind China’s—India’s economy has gained steady momentum. In recent years, India has emerged as the world’s fastest-growing major economy, surpassing China in growth rates.

Data from the World Bank, China’s National Bureau of Statistics, and the Press Information Bureau of India indicate that India has consistently outpaced China in GDP growth from 2021 to 2024. In 2021, India’s economy grew by 9.1 percent, compared to China’s growth of 8.1 percent. The gap widened in 2022, with India expanding by 7.2 percent while China experienced a slowdown to 3.0 percent. In 2023 and 2024, India continued to lead, recording growth rates of 8.2 percent and 6.5 percent, respectively, compared to China’s 5.2 percent and 5.0 percent.

India’s economic momentum has strengthened over the past four years. In response to U.S. tariffs, New Delhi’s cooperative approach stands in stark contrast to Beijing’s aggressive stance, further solidifying India’s competitive position.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.