India may gain from Trump’s tariff hike on Chinese imports, but challenges remain

US President-elect Donald Trump’s announcement on Monday to impose a 25 per cent tariff on all goods from Mexico and Canada, and an additional 10 per cent tariff on Chinese imports, has sparked concerns about the impact on global trade. Trump aims to crack down on illegal immigration and drug smuggling into the US, as well as curb the smuggling of synthetic opioid fentanyl from China.

Trump is set to assume office on January 20, 2025, and made this announcement on social media.

Is India set to gain by the tariff hike?

Exporters believe that the imposition of an additional 10 per cent cost on Chinese imports can create alternative opportunities for India, similar to the “China plus one” strategy adopted by the US during Covid. This strategy encourages corporates to source products and manufacturing activities away from China to minimise risk. As a result, countries like India, Bangladesh, Thailand, and Vietnam have emerged as promising destinations for investment.

According to SC Ralhan, former president of Federation of Indian Export Organisation (FIEO), “India is substantially set to gain from the imposition of 10 per cent additional tariff on Chinese imports.” The major sectors expected to benefit are ready-made garments, hand tools, machine tools, automotive components, handicrafts, and crafts.

However, DS Rawat, chairman of MSME export promotion council, cautioned that India’s manufacturing sector is still not strong enough to fully capitalise on the opportunity. “India may not be the biggest beneficiary unless we strengthen our research and development base and become more competitive in the global market,” he added.

A study by United States International Trade Commission (USITC) found that while US firms partially moved away from China for sourcing apparel, it was Vietnam and Bangladesh that benefited the most, with their shares increasing by 7.8 per cent and 3 per cent, respectively. India’s share, on the other hand, increased by only 1.8 per cent. The period of consideration for the study was between 2013 and 2023.

India-US bilateral trade

The bilateral trade between India and the US stood at $118.3 billion in 2023-24, with Indian exports to the US dipping by 1.32 per cent to $77.5 billion.

Trump’s take on India

Trump has previously accused India of imposing high tariffs on foreign products and promised to introduce a reciprocal tax if he wins the elections. Citing the example of import taxes on Harley Davidson bikes, he accused India of being the biggest charger of tariffs. However, it remains to be seen how his policies will impact India-US trade relations.