Intro: US President Donald Trump’s recent tariff relaxation on India is reshaping India-China trade relations and giving India a competitive edge over Vietnam in global exports.
The recent easing of tariffs by US President Donald Trump on India in exchange for India reducing its oil imports from Russia has changed the face of commercial relations between China and India.
Trump’s Tariff Relaxation and India-China Trade Relations
Trade and national security concerns in India-China ties are anticipated to overlap as a result of the United States’ decrease of reciprocal tariffs from 25 percent to 18 percent and the removal of a 25 percent penalty tariff on lowering imports of Russian crude oil.
Not a burden for a large trade imbalance, large imports from China are a recognized pivot to the establishment of new sectors in India. Large imports from China are no longer a danger; rather, they are benign and often essential to the development of new Indian businesses and a fresh perspective on the export basket.
Rise of New Industries in India
New industries are emerging as pillars for manufacturing and export growth, while traditional industries are relegating themselves to the back seat. One example is the explosive rise in exports of electronic items, which have surpassed more established sectors such as textiles, clothing, leather, and chemicals in the export basket. With the implementation of the Make in India project, electronic items become the primary driver of India’s export basket development throughout the ten-year period between 2014 and 2025.
In the export basket, electronic items jumped from seventh place in 2014–15 to third place in 2024–25. From just 2.4% of the export basket in 2014–15 to 9.4% in 2014–15, it increased its proportion significantly.
Growth of Electronics Manufacturing
India’s production of electronic goods increased sixfold between 2014 and 2015, from US$21.3 billion to US$127 billion in 2024–2025. The world’s second-largest producer of mobile phones is India.
What caused the nation’s electronic industry to grow so rapidly? The PLI (Productivity Linked Incentive) program was not the only one. As a result, the expansion was dependent on Chinese imports. The largest contributor to the expansion of India’s electronic sector was China. It made up around 39.7% of India’s total imports of Chinese-made electronics, mostly essential components and parts like PCBs, display screens, and semiconductor devices.
Chinese Investment and Policy Considerations
The current circumstances forced India to reconsider its decision to allow Chinese investment in the country. Currently, India allows Chinese foreign direct investment (FDI) under a limited policy environment. Automatic Route does not allow it because of security issues.
In addition to electronics, China is the largest importer of parts and components used in the production of cars and telephones, serving as a vital supply chain.
Engineering Sector and Make in India
Under the Make in India policy, the Indian engineering sector experienced rapid expansion. The car industry, which accounted for 7.1 percent of GDP, was the catalyst. It is interesting to note that although China was a big contributor to the supply chain that helped the Indian car industry flourish, Japanese investors make up the majority of the industry’s investors.
China’s imports also had a big impact on how India’s export portfolio changed. Engineering and electronic products now account for a sizable portion of the nation’s exports. Together, electronics and engineering items made up 34.4% of the nation’s total exports in 2024–2025, up from 15.3% in 2000–01. These caused conventional industries like agriculture, textiles, and clothing to rally behind them, dropping from one-fourth of the export basket in 2000–01 to one-tenth in 2024–25.
India vs Vietnam: Competitive Advantage
India’s manufacturing would probably benefit from Trump’s tariff relief, which will increase its reliance on Chinese suppliers. It will probably provide an advantage over Vietnam. Vietnam, which had a high tariff burden during Trump’s first term as president, was formerly the main conduit for China to reroute shipments to the United States.
Despite being the largest exporter to the United States, Vietnam is subject to lower tariffs (20 percent) under Trump’s MAGA regime than India (50 percent). In 2024, Vietnam’s share of US imports was 4.0 percent, while India’s share was 2.7 percent.
There is a catch, though. Vietnam is subject to a transshipment charge of 45 percent. Goods that are rerouted through a third nation to conceal their true origin by simply altering their packaging in order to avoid hefty tariffs are subject to this punitive tariff.
📈 India’s Electronics Export Surge
- 2024–25 Electronics Share: 17.6% of India’s total exports to USA
- Main Products: Telecom equipment, electronic components
- US Tariff Status: Fully exempted from Trump’s tariffs
- Impact: Gives India edge over Vietnam for US exports
Some contend that the backdoor entry of Chinese commodities to the United States was the primary cause of Vietnam’s success in the American market. China, which was subject to hefty tariffs during Trump’s first term as president, was the largest stakeholder in rerouting goods through Vietnam. A study found that in 2022, China redirected around 30.4% of Vietnam’s exports to the United States.
In light of this, India may be able to surpass Vietnam in luring China to assist in fulfilling supply chain requirements.
🔗 China-India Supply Chain Advantage
- Key Role: Critical parts for electronics & automobiles
- FDI Status: Restricted, not automatic route
- Impact on India: Stronger manufacturing & export potential
- Vietnam Comparison: India better positioned for US market
In 2024–25, India’s largest exports to the United States were electronic items, particularly telecom equipment and parts. In 2024–2025, it made up 17.6%, or nearly one-fifth, of India’s exports to the United States. By the way, Trump’s tariff problems do not apply to all imports of electronic items from India.
A third of Vietnam’s exports to the United States will be subject to higher duties due to the high transshipment duty. This gives India more room to export to the United States. Trump’s tariff relaxation will offer India a competitive edge against its closest rival, Vietnam, as the country has become a major supplier of electronic goods to the United States and has been free from the reciprocal duty.
Frequently Asked Questions
FAQ 1: What is the recent tariff relaxation for India that Trump announced?
In addition to removing a 25% penalty duty associated with India’s decreased imports of Russian crude oil, US President Donald Trump lowered reciprocal duties on Indian goods from 25% to 18%. India’s exports gain from this action, particularly in the areas of electronics and engineering products.
FAQ 2: What effect does this have on trade relations between China and India?
India imports a lot of parts from China, including semiconductor devices, PCBs, and display panels. The tariff relaxation strengthens the supply chain partnership between China and India in new industries by allowing India to continue obtaining essential inputs from China without having to pay high US tariffs.
FAQ 3: What gives India a competitive advantage over Vietnam?
In order to get around tariffs, Vietnam has been a crucial gateway for Chinese goods to access the US market. However, the cost of redirected goods from Vietnam has increased due to a 45% transshipment charge. India can surpass Vietnam as a preferred exporter since it is not subject to US electronics tariffs.
FAQ 4: In India, which industries gain the most?
The industries that benefit the most include engineering and electronics. India is now a global center for manufacturing and exporting, with electronics exports rising from 2.4% of its export basket in 2014–15 to 9.4% in 2024–25. Together, electronics and engineering currently make up 34.4% of total exports.
FAQ 5: What impact does this have on India’s standing in international trade?
Trump’s lowering of tariffs boosts India’s export competitiveness, particularly to the United States, and attracts foreign investment. India is well-positioned to compete with Vietnam and other rivals in the global electronics export market because to the robust Chinese supply chain.
Conclusion
India now has a major strategic edge in international commerce, especially in electronics and engineering items, thanks to Trump’s tariff relief. India challenges Vietnam’s hegemony in US markets, boosts its manufacturing and export industries, and ushers in a new age of practical India-China commercial relations by utilizing Chinese imports for essential components.
Disclaimer: This article is for informational purposes only and does not constitute financial or trade advice.
