The ongoing US-China trade war has significant implications for India's economy and trade, presenting both challenges and opportunities.

India's exports to China increased from USD 15.30 billion in FY23 to USD 16.65 billion in FY24, driven by commodities like iron ores, engineering goods, marine products, organic chemicals, and petroleum products.

However, India continues to face its largest trade deficit with China due to heavy reliance on imports of electronic components, active pharmaceutical ingredients (APIs), EV batteries, and speciality metals. This dependence makes India vulnerable to disruptions in supply chains caused by the trade war.

The US-China tariff conflict has also led to trade diversion. Higher US tariffs on Chinese goods have encouraged American firms to seek alternative suppliers, benefiting Indian exporters in sectors like telecommunications and electronics.

During the first trade war phase, Indian exports to the US grew significantly, rising from USD 57 billion to USD 73 billion. Similarly, Chinese producers may redirect excess inventory toward India due to tightened access to US and European markets, potentially affecting local industries.

The trade war has triggered global currency volatility. The Indian rupee has experienced fluctuations due to the weakening of the US dollar and speculation about China's potential currency devaluation. A weaker rupee could make Indian exports more competitive but would increase import costs, particularly for essential goods like crude oil and industrial raw materials.

Indian equity markets have shown resilience amidst global uncertainty. For instance, benchmark indices like Nifty 50 and BSE Sensex rebounded strongly following temporary pauses in US tariffs. The Indian rupee also recovered against the dollar during this period, signalling improved investor sentiment.

Global supply chain disruptions caused by the trade war could exacerbate inflation in India. Higher import costs for essential goods may intensify price pressures on businesses and consumers. Similar trends were observed during earlier phases of the trade conflict when India's Consumer Price Index (CPI) inflation surged significantly.

India's cautious approach toward the tariff issue may offer long-term advantages. Reports suggest that India could finalise a provisional trade agreement with the US within 90 days, potentially boosting bilateral trade relations. Furthermore, India's comparative advantage in manufacturing positions it as a favourable destination for trade diversion from China.

Despite these opportunities, India remains exposed to risks associated with global economic uncertainty stemming from the trade war. Weak domestic consumer demand and reduced private investment could slow GDP growth further. Additionally, India's manufacturing sector faces challenges due to dependency on Chinese imports and competition from redirected Chinese goods.

In conclusion, while the US-China trade war creates opportunities for India in terms of export growth and strategic partnerships, it also poses significant risks due to supply chain disruptions, currency volatility, inflationary pressures, and dependency on Chinese imports. Balancing these factors will be critical for India's economic stability and growth trajectory.

Agencies