When Donald Trump outlined his plan to impose stringent tariffs on goods from China, Canada, and Mexico after taking office in January, he framed the move as a way to crack down on illegal immigration and drug smuggling, particularly targeting the trade of fentanyl from China. This decision was expected to have significant implications for global trade, and while it posed a challenge to China, it also presented a potential opportunity for India.
Trump's proposal to immediately impose a 25% tariff on goods from Mexico and Canada and an additional 10% tariff on imports from China highlighted his commitment to reducing America’s reliance on these countries for essential goods. He cited China’s insufficient efforts to curb the flow of fentanyl, which was responsible for a staggering number of American deaths, as a key reason for this drastic move. In his own words, Trump said, "I have had many talks with China about the massive amounts of drugs, in particular fentanyl, being sent into the United States—but to no avail."
This tariff strategy aligns with Trump’s broader economic vision, which he had expressed during his campaign and in his first term as President. For countries like India, this shift in U.S. trade policy presented a chance to step in as an alternative manufacturing hub, particularly as American companies sought to diversify their supply chains away from China.
India’s potential to benefit from this shift is a subject of debate. Experts like Nilanjan Ghosh, Director at Observer Research Foundation (ORF), suggest that India could seize the opportunity in much the same way it benefited during the “China+1” trend that emerged during the COVID-19 pandemic. This phenomenon saw many companies diversifying their production away from China to countries like Vietnam, India, Indonesia, and South Korea. India’s vast market and manufacturing capabilities make it well-positioned to absorb some of this displaced production, especially as global companies aim to minimize their dependence on China.
Geopolitical expert Farid Zakaria also sees this as a "golden opportunity" for India. Zakaria believes that the shift in American trade policy would foster greater cooperation between the U.S. and India, further diminishing China's dominance in manufacturing. As American businesses continue to de-risk their reliance on Chinese supply chains, India’s role as an alternative manufacturing hub could increase.
Zakaria further noted that while countries like Vietnam and Malaysia might benefit from this shift, only India has the scale and infrastructure to meet the demand created by these changes. India's size, its growing middle class, and its burgeoning manufacturing capabilities give it an edge over other emerging economies in this regard. In fact, experts like Ghosh emphasize that India’s demographic dividend—its young and large workforce—places it at a significant advantage over other countries vying for global manufacturing contracts.
In addition to its demographic advantage, India is projected to be the world’s fastest-growing major economy. According to the International Monetary Fund (IMF), India is the only economy among the emerging markets projected to grow at more than 7% annually. This impressive growth trajectory could enhance India’s competitiveness in international trade, particularly in sectors like textiles, pharmaceuticals, and electronics, where it already has a strong presence.
However, while the prospect of reaping the benefits of this shift in U.S. trade policy is promising, experts caution that India needs to address its own internal economic challenges to fully capitalize on the opportunity. High inflation, fiscal deficits, and a complex regulatory environment have traditionally deterred foreign investment in India. If the country can improve its business climate—simplifying regulations, improving infrastructure, and incentivizing foreign direct investment—it could position itself as a more attractive destination for global businesses looking to diversify away from China.
One concern that has been raised in the context of the U.S. tariffs is whether India could eventually face similar tariff measures from the United States. While experts like Ghosh do not foresee a direct impact on Indian exports to the U.S., others, including Zakaria, point out that India’s own import tariffs are among the highest in the world, which could lead to protectionist sentiments in the U.S. In fact, during his first term, Trump publicly criticized India for its high tariffs, saying, “One of the highest tariffs in the world is India.” Despite this, experts remain hopeful that the overall economic relationship between the two countries will remain positive.
Furthermore, India’s ongoing efforts to integrate more deeply into global trade networks could further improve its standing as a trading partner. India’s participation in initiatives like the Indo-Pacific Economic Framework (IPEF) and potential re-entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could also provide India with more leverage and make it an even more attractive option for businesses seeking alternatives to China.
India’s path forward, however, is not without hurdles. While the potential is there, the country must navigate its own challenges, both economic and logistical, to emerge as a true beneficiary of the shifting global trade landscape. The next few years will be crucial as India attempts to transform this opportunity into long-term growth and increased prominence on the global stage.
