US-China trade war: Counting chickens in India's opportunity talk

Policymakers and pundits in Delhi have been quick to declare the United States (US)-China trade war a golden opportunity for India. As supply chains fray and geopolitical tensions deepen, could India finally seize a slice of China’s enormous export pie?  On the surface, the logic is appealing. If tariffs and restrictions make Chinese goods less welcome in American ports, surely the  world’s largest democracy—with its low labour costs and burgeoning industrial base—can fill the gap. But beneath the optimism lies a more sobering reality.

  To begin with, the scale of China’s export machine is staggering. In 2024, it shipped goods worth $439 billion directly to the US. Add indirect exports—those routed via Vietnam, Malaysia, Cambodia, and Mexico—and the figure climbs even higher. Replacing this volume is no small feat. India and its peers simply do not have the industrial depth, logistical capability, or policy clarity to substitute Chinese supply at scale.

  The second issue is timing. Trade between Washington and Beijing has collapsed. But the idea of a long, grinding standoff is unrealistic. Within weeks, many American store shelves would begin to empty. China-based sellers constitute more than half of Amazon’s top-performing vendors. Should imports of electronics, toys, apparel, and household goods remain stalled, prices would rise sharply, fuelling higher inflation expectations in a self-reinforcing cycle and ultimately shaking confidence in US financial assets. Pressure for a resolution—any resolution—will mount quickly. Any surge in Indian exports, therefore, is likely to be short-lived. But some commentators think they have spotted a silver lining nevertheless. The US and China have been in a trade war for more than a decade; it’s not just a Trump thing. So, even if a deal is reached, it may merely codify higher tariffs on  Chinese goods. That, some argue, would leave Indian goods relatively competitive. Perhaps.

  But the issue is not whether the door is ajar. It is whether India is capable of walking through it. India’s manufacturing sector remains fragmented, largely low-tech, and ill-equipped to plug even a modest gap left by China. Its traditional exports — textiles, garments, and jewellery — have not scaled up with global demand. Only in the pharmaceutical sector does India boast true heft: It supplies nearly half of America’s generic medicines. Here, additional gains are plausible. Elsewhere, challenges abound. One of the chief obstacles is quality. Indian products often struggle to meet international standards. Scaling up production is constrained by inadequate infrastructure, policy inconsistency, and a shortage of skilled labour.

  Exporters face a thicket of direct impediments. Regulatory compliance is onerous. According to HDFC Bank, India’s exporters must navigate a formidable list of one-time and recurring documentation. Transport infrastructure is no less daunting.  Congested and inefficient roads, railways, seaports, and airports impose delays and increased costs, directly impacting exporters’ ability to meet delivery terms. Exporters in landlocked states are hamstrung by a lack of connectivity to gateway ports. It takes three-four days to move a shipment from a warehouse in Delhi to a port, three times longer than in other countries. This particularly affects agricultural produce. The Indian Railways, one of the world’s five largest, moves over 3 million tonnes of cargo across the country. Yet the system is hobbled by ageing equipment, the lack of a modern signalling system, and an acute shortage of rakes, leading to higher costs and delays. 

Dependence, not dominance

  Even as India eyes export gains, it is becoming more dependent on imports, especially from China. In 2023-24, nearly 63 per cent of India’s imports of solar equipment came from its northern neighbour. China controls 97 per cent of global polysilicon production and 80 per cent of solar-module output. Indian manufacturers of smartphones, laptops, and appliances are similarly dependent on Chinese components. More worryingly, roughly 70 per cent of active pharmaceutical ingredients (APIs) used in Indian drug manufacturing originate in China. A disruption in this supply chain would rattle India’s health care system and undermine its export competitiveness. Chinese auto parts, too, remain essential to Indian assembly lines. Meanwhile, the metal sector is grappling with falling prices, declining exports, and rising imports—many of them Chinese. The risk of dumping looms large.

  Those expecting India to emerge as the next link in global supply chains may need to temper their hopes. Building global competitiveness requires patient, unglamorous hard work, done diligently over a decade. That means investing in science and technical education, scaling up vocational training, easing conditions for doing business, lowering indirect taxes, fostering fierce competition, supporting budding export champions, and creating conditions for sustained foreign direct investment with meaningful technology transfer. These failings cannot be remedied by mere geopolitics.

  If India had done those hard things, we would have been competitive by now. We haven’t, which is why the “Make in India” initiative, launched in 2014 and aiming to raise the share of manufacturing in gross domestic product to 25 per cent by 2022 and boosting exports, has been a terrible failure. Even if the US-China rivalry creates openings, India lacks the capacity to exploit them. Ultimately, the key question is not whether the world will offer India a chance. It is whether India’s political and bureaucratic leadership will do the hard work needed to seize it. We can still do these hard things now, but the question to ask about any public policy wish list is: Who will do it (capable and accountable individuals) and why (what incentive do they have)? It calls for a completely different level of dedication and seriousness among our netas and babus and, above all, a sense of national urgency, as any student of East Asia’s economic miracles (South Korea, Japan, Taiwan, Singapore, and China) would attest to.

The author is editor of www.moneylife.in and a trustee of the Moneylife Foundation; @Moneylifers