As global trade dynamics shift under Donald Trump’s policies, India stands to gain from the move by multinational companies to diversify supply chains beyond China

Releasing a report the ‘Trade Watch’, on December 25, 2024, NITI Aayog CEO BVR Subrahmanyam has suggested that trade policies under US President-elect Donald Trump could result in a potential economic boom for India, driven by significant trade diversion in global trade. He said ‘Whatever Trump has announced so far, which is likely to come up… there are opportunities. We are the man at first slip. The ball is coming in our direction. Whether we hold the catch or drop it is for us to decide. There will be huge disruption, and if we prepare for it, there will be a massive boom due to trade diversion.’  

This comes after Trump announced additional tariffs on imports from its biggest trading partners - 25 per cent on Canada and Mexico if they fail to check illegal immigration and drug trade. He also announced a general 10 per cent tariff by the US on all imports and a 60 per cent tariff on imports from China. Meanwhile, the US has also announced restrictions on the export of computer chip-making equipment, software, and high-bandwidth memory chips to China.  Trump has also threatened to impose 100 per cent tariffs on BRICS (Brazil, Russia, India, China, and South Africa) countries if they try to undermine the US dollar. The US is the biggest importer in the world with a mammoth import valued at US$ 3200 billion during CY 2022. During that year, its import from China alone was US$536.3 billion which works out to 16.7 percent of total goods imports.

US goods imports from Canada and Mexico were US$436.6 billion and US$454.8 billion or 13.6 per cent and 14.2 per cent respectively. In sharp contrast, US goods imports from India during 2022 were US$85.5 billion or a meagre 2.6 per cent of its total goods import. Now, if Trump executes his threat of imposing a 60 per cent additional tariff on imports from China, this will lead to an exorbitant increase in the cost of the latter’s goods to American consumers thereby rendering them uncompetitive vis-à-vis similar goods coming from other exporting countries such as India. This should help India capture a big slice of the US import basket currently served by China. This should be possible even if Trump imposes a 10 per cent additional tariff on all its imports including from India. As for Trump’s threat to impose 100 per cent tariffs on BRICS countries (India is one of them) in the event of the latter putting into action their so-called ‘de-dollarization’ plan (De-dollarization is a process of moving away from the world’s reliance on the U.S. dollar as the chief reserve currency), this is theoretical.

At the 16th summit held on 22–24 October 2024 in Kazan, BRICS leaders, including Russian President Vladimir Putin and Chinese leader Xi Jinping, publicly voiced their commitment to jointly introduce an alternative payment system that wouldn’t be dependent on the U.S. dollar. The feasibility of implementing this idea anytime soon is suspect.  Second, the US is also hell-bent on taking measures that will undermine the capabilities of China to boost the production of its goods such as electronics (including smartphones), automobiles etc in which it has a comparative advantage. So, it has imposed restrictions on the export of computer chip-making equipment, software, and high-bandwidth memory chips to China.

As a result, China not have much surplus to send to the US (and other countries), and India will have more space to boost its export of electronics, automobiles etc.Third, European Union (EU) countries have also imposed tariffs on Chinese EVs (electric vehicles) and solar equipment. Moreover, the multinational companies (MNCs) headquartered in the US and EU countries are shifting their factories away from China, thanks to growing geopolitical uncertainties, the ongoing trade war between the United States and China, cyber-security, and rule-of-law concerns, rising labour costs in China etc. This opens up opportunities as these MNCs can relocate their production bases to India.       All of this reinforces a case for ‘China Plus One’, a potent business strategy that involves diversifying manufacturing and sourcing away from China aimed at reducing the risk of over-reliance on China for manufacturing and sourcing.

Is India ready to capitalise?

None other than NITI Aayog’s ‘Trade Watch’ report says that even as many Asian countries such as Vietnam, Thailand, Cambodia, and Malaysia have emerged as bigger beneficiaries of the ‘China Plus One’ strategy – enabled by factors such as cheaper labour, simplified tax laws, lower tariffs, signing Free Trade Agreements (FTAs) – leading to substantial surge in their exports especially in high-growth sectors, India has lagged. Although India has achieved production gains, they have not significantly contributed to domestic value addition, unlike its peer economies.

In India’s high-tech sector, while exports surged by 350 per cent between 2017 and 2023, domestic value-added output fell by 18 per cent. In manufacturing, by contrast, during this period, even as domestic value-added grew at 26 per cent, it still trailed behind merchandise export growth of 44 per cent.In electronics, India’s share in US imports has grown from 0.2 per cent in 2017 to 2.1 per cent in 2023, courtesy of, the government’s push toward high-tech exports. However, competitors like Vietnam, Taiwan, Malaysia, and Thailand dominate, with each holding a substantially higher market share in US electronics imports.

An overarching reason behind India ‘dropping the catch despite the man at first slip and the ball coming in our direction’ is a high-cost domestic environment (this is despite a host of incentives given under the Production Linked Incentive or PLI schemes to industries) which makes our products uncompetitive in the export as well as domestic market. It also explains why our industries demand high protective tariffs and government yields; for instance, it has on the table a proposal for a 25 per cent hike in steel import duties.  It is also a major factor behind India’s reluctance to join major multilateral trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) etc which help the country to better integrate into the global economy and benefit from expanded trade opportunities by facilitating access to markets of their member countries duty-free or at close to zero tariffs. Micro, Small & Medium Enterprises (MSMEs) contribute nearly 40 per cent of exports. But, India not being a part of such trade alliances, they are denied an opportunity to boost exports. At the same time, they suffer due to high protective tariffs on the import of basic materials such as steel. A 25 per cent hike in import duties on steel products - asked by the Ministry of Steel - will impart a deadly blow to the MSMEs. 

There are four major reasons as to why costs in India are high. First, businesses in basic materials and feedstock such as copper, zinc, aluminium, oil and gas, chemicals, petrochemicals etc are natural monopolies enabling them to set high prices. Second, tax rates are pretty high particularly when it comes to petroleum products which are still taxed under the pre-GST regime. By increasing movement costs, these increase the cost of all goods across the board.

Third, power tariffs are exorbitant thanks to excessive State controls on power distribution companies. Finally, industries operate in highly interest-rate environments. India can catapult itself to the position of fully leveraging the ‘China Plus One’ strategy only if it effectively addresses the present high-cost syndrome.

(The writer is a policy analyst; views are personal)