India emerges as trade war beneficiary amid US-China rift

As the US-China trade war deepens, India is rapidly emerging as a significant player in the restructured global trade architecture.

Data released by China’s General Administration of Customs on June 10 and India’s Commerce Ministry on June 16 shows a sharp reorientation in international trade routes, with India gaining both as an export destination for Chinese goods and as a key supplier to the United States.

While China’s overall exports rose by 4.6 per cent year-on-year in May 2025 to $316.2 billion, its exports to the United States plunged sharply by 34.5 per cent, falling from $44 billion in May 2024 to just $28.8 billion.

To offset this decline, China has redirected its export flows toward markets like the European Union (EU) (up 12 per cent to $49.5 billion), ASEAN (Association of Southeast Asian Nations) (up 15 per cent to $58.4 billion), and India (up 12.4 per cent to $11.13 billion).

India’s imports reveal a shift in composition

India’s trade dynamics reflect the spillover effects of this redirection. Though India’s total merchandise imports marginally dropped by 1.8 per cent year-on-year in May—down from $61.7 billion in May 2024 to $60.6 billion this year—the fall was primarily due to lower imports of oil, gold, and diamonds. Excluding these three categories, imports surged 12 per cent, rising from $36.8 billion to $41.2 billion.

The fastest-growing import segments were electronics and machinery. Electronics imports jumped 27.5 per cent to $9.1 billion, while imports of machinery and computer-related equipment rose 22 per cent to $5 billion.

Much of this increase came from China and Hong Kong, with combined imports from the two rising 22.4 per cent, from $9.8 billion in May 2024 to $12 billion this May.

This rise in imports was also reflected in domestic tax collections. India’s Integrated GST (IGST) revenue on imports surged by 72.9 per cent from ₹24,510 crore ($2.85 billion) in May 2024 to ₹42,370 crore ($4.92 billion) this May.

As petroleum products are exempt from GST, the increase is largely attributed to higher import volumes of electronics, machinery, and industrial components.

India’s exports to the US gain momentum

India also benefited on the export side, capitalising on the void created by reduced Chinese shipments to the US. Indian exports to the United States rose by 17.3 per cent year-on-year in May 2025, reaching $8.8 billion.

A significant portion of this growth came from electronics, particularly smartphones. Overall, India’s merchandise exports dipped slightly from $39.59 billion in May 2024 to $38.73 billion this year but registered a 54.1 per cent increase in electronics exports at $4.57 billion, partially offsetting the decline in other sectors.

Engineering goods remained resilient, with a minor decline of 0.8 per cent in May 2025 compared to the previous year. However, cumulative engineering exports for April–May FY26 stood at $19.40 billion, up 4.7 per cent from the same period last year.

A strategic advantage for India?

The US tariff policy under the Trump administration is playing a critical role in the recent evolution in trade patterns. Washington has recently announced a 55 per cent tariff on Chinese goods, although only part of this constitutes new duties. When excluding pre-existing tariffs, the effective new rate is closer to 30 per cent.

In contrast, Indian products face a 26 per cent duty at present, with prospects of this falling further under a potential US-India trade deal expected in July.

This tariff differential could give Indian exporters a temporary edge over their Chinese competitors in the American market. However, the volatility of US trade policy, where tariff decisions can change rapidly, adds an element of uncertainty for long-term planning.

Geopolitical risks and trade vulnerabilities

Even as India capitalises on trade realignment, risks persist. Geopolitical tensions in West Asia, especially around the Strait of Hormuz, pose threats to energy security and logistics for Indian exporters.

Additionally, concerns over potential dumping by Chinese exporters into alternative markets like India are growing, given China’s push to find new outlets amid restricted access to the US.

China’s increasing exports to India, combined with its dominance in critical industrial inputs like electronics, machinery, and rare earth magnets, raise alarms over strategic dependence.

Chinese restrictions on rare earths, which are essential for electric vehicles and other high-tech industries, have already triggered disruptions in the US, and similar risks loom for India.

The May 2025 trade data reflects a global supply chain in flux, with India both benefiting from and adapting to the new order. While India’s rising exports is a promising sign, the nation must remain alert to new vulnerabilities and balance short-term gains with long-term strategic safeguards.