With the world looking to reduce reliance on China, India’s political stability, consistent policies, and sizeable operational capacity make it a key alternative
On an otherwise unremarkable morning, I watched President Trump’s press conference announcing a significant shift in global trade. He unveiled sweeping tariffs under the “America First” banner, including a staggering 104per cent tariff on China. Meanwhile, the European Union is considering a 25per cent retaliatory levy, highlighting the rise of protectionist sentiment in global policy. In the complex arena of global geopolitics, opportunities often emerge from seemingly chaotic situations. India has a notable track record of navigating such challenges. During the pandemic, it became the world’s pharmacy, delivering over two billion vaccine doses to more than 90 nations and developing praised digital platforms like CoWIN. Amid the turmoil of the Russia-Ukraine war, India adeptly increased discounted oil imports from Russia, stabilised domestic inflation, and exported refined fuel to Europe, all while maintaining a careful geopolitical balance.
Let the world turn protectionist. We shall turn purposeful. India currently faces a 26 per cent tariff, while key competitors like Vietnam, Bangladesh, and China face much higher rates of 46 per cent, 37 per cent, and 34 per cent, respectively. Malaysia has a comparable tariff of 24 per cent but lacks India’s diverse export sectors. India is well-positioned for long-term growth with its scale, stable policies, and demographic advantages.
India is becoming increasingly cost-competitive in the global market as American retailers reassess their sourcing strategies. With the world looking to reduce reliance on China, India’s political stability, consistent policies, and sizeable operational capacity make it a key alternative. Sectors like electronics are poised for growth, especially as countries like China and Vietnam face higher tariffs. A prime example is Apple, which is expanding partnerships with Indian firms like Tata Electronics to meet rising US demand. India could further drive this trend, encouraging firms to utilise India’s Production-Linked Incentive scheme, enhancing India’s position as a leading manufacturing hub.
President Trump’s announcement of a 104 per cent tariff on Chinese imports marks a defining moment in the evolution of U.S.-China economic relations. It’s a sweeping escalation affecting many industries critical to American manufacturing and consumption. The U.S. has long depended on China as a dominant supplier of machinery and electronics for automobiles, electrical equipment, and rare earth materials. For instance, China accounts for nearly 27 per cent of U.S. electrical and electronic equipment imports and over 16 per cent of machinery imports. Given how central these sectors are to the U.S. economy, a complete decoupling is neither easy nor costless, so diplomatic reconciliation is still on the cards. However, even if rapprochement occurs, the long-term shift is already underway. US corporations will diversify their sourcing bases to reduce geopolitical risk, and India stands out as a viable and democratic alternative.
The United States has become India’s largest trading partner, reflecting significant advancements in their relationship over the past decade. Access to the US market presents significant opportunities for India’s growth. Additionally, Washington must ally with India, a nation of 1.4 billion people, to counterbalance China.
By engaging in early dialogue with the U.S. rather than conflict, India had strategically positioned itself to negotiate favourable trade terms and emerge as a trusted global trade partner.
At the same time, India is putting itself for a multipolar trade order, having signed over 10 Free Trade Agreements in the last five years with partners like the UAE and Australia. Ongoing negotiations with the EU, UK, and EFTA enhance its commercial ties, giving Indian exporters access to stable markets while reducing disruption risks. India’s structural transformation also supports this shift with investments in people, infrastructure, and innovation.
The country’s inward-focused yet globally attuned-economic model allows for key reforms to strengthen logistics and regulatory processes. Commitment to green manufacturing and robust digital infrastructure ensures that Indian exports are competitive and sustainable. This evolving trade landscape can drive job creation and skill development and attract foreign direct investment. With a growing consumer base, India is poised to adapt to changes and lead the global economy.
The Federation of Indian Export Organisations (FIEO) projects a $50 billion opportunity arising from this disruption. It is not merely a windfall — it marks a fundamental rebalancing of global supply chains, with India poised at the very axis of this new commercial order. While a short-term impact is inevitable, the PHD Chamber of Commerce and Industry (PHDCCI) has projected that India’s GDP would see only a marginal 0.1 per cent effect from the newly imposed US reciprocal tariffs.
It reflects the nation’s growing domestic manufacturing strength, competitive pricing, and strong policy support. The robustness of US domestic demand and negotiations by American importers seeking price relief will be important to monitor.
The Reserve Bank of India’s recent decision to reduce the repo rate by 25 basis points — bringing it down from 6.25 per cent to 6.00 per cent — is pivotal for the Indian economy. With global supply chains in flux due to intensifying US - China trade tensions, this policy move acts as a timely enabler for domestic industry. Though volatile global capital markets may obscure immediate investor reactions, a reduction in the repo rate typically nudges down deposit rates, thereby lowering the cost of funds for banks.
This, in turn, is expected to seep into reduced lending rates across sectors, particularly benefiting capital-intensive industries and MSMEs. As borrowing becomes more affordable, private investment is poised to pick up momentum, especially in export-linked sectors that should be India’s first new orders as companies may shift away from Chinese suppliers.
India, with its large domestic market, developing industrial base, and growing diplomatic ties, is positioned to lead amidst global shifts. As supply chains reshape and nations seek dependable partners, India provides a reliable path forward, fostering trade and talent even as tariffs rise elsewhere.
(The writer Professor of Finance, XLRI Xavier School of Management and BJP Leader. Views are personal)
