The tariff war between the United States and its major trading partners, China and Canada, has been escalating, leading to altered global trade dynamics. While the Trump administration has levied a 25% tariff on imports from Canada and Mexico and a 20% tariff on Chinese imports, China retaliated by announcing additional tariffs targeting major US agricultural products. On the other hand, a 30-day suspension on US tariffs was announced for Canada and Mexico in agreement with Trump, who agreed to the suspension in return for hikes in US tariffs.
Starting March 10, Beijing imposed a 15% tariff on US chicken, wheat, corn, and cotton, and a 10% tariff on soybeans, pork, beef, seafood, fruits, vegetables, and dairy products. These measures, which were aimed to protect domestic US industries, have led to significant global trade shifts.
Impact of US-China & Canada Trade War on India
The increased tariffs on imports from China, Canada, and Mexico to the US market have made several products more expensive. S.C. Ralhan, president-designate of the Federation of Indian Export Organisations (FIEO), highlighted that Indian exports could gain by tapping into these opportunities:
- Agriculture: Indian agricultural products, such as soybeans and seafood, can enter the US market, which was previously dominated by China.
- Engineering and Machine Tools: Indian manufacturers can position themselves as potential alternatives, with higher tariffs on Chinese machinery.
- Textiles and Garments: The textile industry in India can gain from the reduced competition from countries affected by the tariff.
- Chemicals and Leather: Indian suppliers may see increased demand from US importers in these sectors.
Attracting Foreign Investment
Due to the escalating trade war, American companies seeking to diversify their manufacturing bases from China can now consider India as their destination. Trade analysts propose that this shift could provide a significant boost to India’s manufacturing sector.
Government Initiatives to Benefit from Trade War
Given the impact of the US-China trade war on India, the government is proactively working to attract potential investors through reduced regulatory burdens and a more export-friendly and economic growth environment:
- Regulatory Reforms: Recently India’s Finance Minister Nirmala Sitharaman reiterated the need to reduce regulatory burdens and ensure trust-based governance to make India “export friendly”.
- Manufacturing Sector Reforms: The finance minister also emphasised the need to remove unnecessary bottlenecks to attract domestic and foreign investors in the manufacturing sector and position India as a trusted global player.
Challenges and Risks
Despite having immense opportunities, there are challenges and risks to be considered:
- Increased Competition: Emerging economies like Vietnam and Bangladesh provide tough competition to India in terms of low-cost labour. They are also vying to capture the market share vacated by China.
- Infrastructure Constraints: India needs to address logistics and infrastructure constraints to enable efficient production and Indian export processes.
- Regulatory Hurdles: Despite ongoing reforms, the Government needs to reduce red tape, relax labour laws, and simplify taxation and compliance to attract potential investors.
Impact of US-China & Canada Trade War on Indian Markets
The trade tensions have also influenced India’s financial markets and currency valuation:
- Rupee Depreciation: On March 10, 2025, the Indian rupee declined 0.4% to 87.26 against the US dollar as a result of strong demand for the US dollar and a weakening Chinese yuan.
- Stock Market Fluctuations: Nifty 50 closed 0.41% lower at 22,460.3, while the Sensex fell 0.29% to 74,115 on March 10, 2025, with the broader market seeing sharper cuts as concerns over U.S. tariffs-related volatility.
Long-Term Strategic Considerations
The restart of a tariff war between the US and China may have a positive impact on Indian exports as seen from Trump’s previous term as President, during which India was the fourth largest beneficiary. However, with the latest policy stance, it seems India might not be completely immune to additional tariffs from the US. To cope with this, India must adopt multifaceted strategies such as reducing dependency on a single market, investing in technology, and strengthening trade alliances to facilitate economic growth.
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