US-China trade war may divert Chinese goods to India

A report by ratings agency CRISIL suggests that the escalating US-China trade war could lead to surplus Chinese goods being redirected to other countries, including India, which is already heavily dependent on imports from Beijing.

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As the United States escalates tariffs and trade barriers against Chinese imports, global trade dynamics are shifting, with significant implications for India. According to a report by ratings agency CRISIL, the fallout of the growing US-China trade war could see surplus Chinese goods being redirected to other nations, including India, which already relies heavily on imports from Beijing.

This development comes as India’s trade relationship with its two largest trading partners—China and the US—continues to evolve in starkly contrasting directions. In 2023-24, India’s merchandise trade with the US reached US$120 billion, while trade with China hit an all-time high of US$118 billion. Over the past decade, India’s trade with both nations has doubled. However, the nature of these relationships underscores a sharp divergence.

India enjoys a substantial trade surplus of US$35.3 billion with the US, which has grown at an average annual rate of 9.8% over the past decade. This growth reflects the strength of India’s exports in sectors such as information technology, pharmaceuticals, and engineering goods. In contrast, India’s trade deficit with China—a staggering US$85.1 billion in FY24—is its largest with any trading partner. This deficit has expanded by an average of 11.1% annually over the same period, highlighting India’s dependence on Chinese imports, particularly for electronics, machinery, and chemicals.

The US-China trade war could exacerbate this imbalance. Increased tariffs on Chinese goods by the US could result in an oversupply of these products, prompting Chinese exporters to seek alternative markets, including India. This influx could pose challenges for domestic manufacturers, particularly in sectors already competing with low-cost Chinese imports.

CRISIL’s report warns that while India has benefited from trade diversification with the US, the deepening trade deficit with China poses significant risks. The situation is further complicated by India’s stagnant export growth to China, which contrasts with its growing imports.

To mitigate these risks, India must strategically leverage its trade relationships. Strengthening its position in the US market through greater export competitiveness and reducing dependency on Chinese imports by boosting domestic manufacturing and diversifying sourcing could be key.

As global trade dynamics remain in flux, India faces a pivotal moment to recalibrate its trade strategy, balancing the opportunities and challenges presented by the evolving US-China trade tensions.