By Subrata Majumder
USA-China tariff war pause, coupled with marginal reduction of tariff by 10 percent, are unlikely to arrest the attempt by India-China to reduce tension. Pause is fragile and does not usher for any final deal between USA and China in the near future.
In the light of escalation of tariff war between USA and China, it leased out an opportunity for reduction in India-China tension, given the fact that both are haunted by high US tariff – India by 50 percent and China by 47 percent ( after pause).
China is one of the top two trading partners of India. So is USA also. The difference between China and USA in trade partnership with India is that while China is the biggest source for imports, USA is the biggest destination of exports for India.
Nevertheless, though China is the trigger for widening trade deficit of India, it also underscore as the backbone for the success of India’s manufacturing industry and exports. A common proverb hovers, “Make in India relies on Make in China”. Success of new industries like electronic and pharmaceutical industries are the cases in point.The Indian manufacturing is based on Chinese components and raw materials.
Historically, India-China relation has been characterized in paradox. Politically it remains thorny. Trade and economically, it emerges the backbone for new industries growth and export. Political tension thrives due to repeated Chinese infiltration in Indian borders and trade relation surged owing to large imports from China. In the light of USA – China trade relation rising volatile during the second term of Donald Trump Presidency due to threatening of high tariff on China, a new wave of opportunity underscores for India-China trade and investment relations.
After years of security threats due to border disputes and restricting Chinese investment in India since 2000, Trump’s high tariff on China was seen as paving the way for restoration of economic and trade relation with China. Burying the hatchet of boundary disputes, India made a volta-face to Chinese investment. Economic Survey 2023-24, a pre-budget official document, suggested that India should give a relook to Chinese investment and its significance.
The present Indian electronic industry is valued at about US$155 billion. This is a six-fold increase in the electronic goods industry during the last decade. Similarly, Indian pharmaceutical industry made a robust growth. It is the world’s third largest supplier of generic drugs, with market value of approximately US$ 50 billion.
Successes of electronics and pharmaceutical industries in India harp on imports from China. They are components, parts of electronics and pharmaceutical intermediates, such as API (Active Pharmaceutical Ingredients). China is the biggest supplier of these supply chains. In 2024-25, China accounted for more than one-third of India’s imports of electronic components, sharing 39.6 percent of total electronic goods imports and 42.5 percent of total import of pharmaceutical intermediates.
From middle of this year, a tangible move was made for resumption of relation from both sides. India reopened the tourist visa for Chinese nationals, which was suspended in 2020. In turn, China eased export restriction of critical goods for India, such as urea fertilizer, rare earth and removed 30 percent import tariff on Indian exports of pharmaceutical products.
These led to a momentum visit of Chinese Foreign Minister Wang Yi to India in August 2025. The visit underscored several positive steps to improve relation between the two countries. Eventually, direct passenger flights were resumed.
These pre-steps by China reinforced China’s real interests to restore relation with India. This emerged an important bid to impress Indian Prime Minister Narendra Modi to visit China after 7 years and to hold bilateral talks with the Chinese President Xi on the sideline of SCO summit (Shanghai Cooperation Organization), held on August 31 to September 1, 2025 in Tianjin.
The warming of India-China relation amid the global trade uncertainty is strategic from the point of view of both countries common interests to stave off Trump’s tariff weaponisation. For India, Trump led tariff war created economic urgency to diversify export and reduce dependence on USA. Supply chain is a crucial area, which will be expanded in India in association with China. For China, stabilizing relation with India re-opens opportunities to enter vast market for infrastructure and clean energy.
In the light of these developments, Indian business tycoon, Adani group, was reportedly exploring tie-ups with Chinese EV giant BYD to manufacture batteries in India.
To this end, a lesson from Vietnam is pertinent. Vietnam’s rise as a global manufacturing hub and 6th biggest exporter to USA rely on Chinese investment and exports. Notwithstanding political tiff, marked by historical conflict and contentious issues like ongoing Chinese repeated interventions in South China Sea, Vietnam’s large dependence on China for trade and economic relation unfolds a clear message to India as not to mingle political tiff with economic and trade relation.
Vietnam relies largely on China for intermediate goods and supply chain. Arguably, despite Vietnam is engaged in FTAs with several countries to diversify, its procurement of raw materials and equipments used by its manufacturing exporters is dominated by China. According to some studies, around 60-70 percent of the raw materials and equipment for overall manufacturing in Vietnam come from China. China is the biggest supplier of electronic machinery, components and textile materials. In 2024, China accounted for 38 percent of total imports in Vietnam.
Against these backdrops of global turbulence in trade and rising geo-political tension, a coherent relation between India-China, coupled with BRICS emerging stronger, can bid a challenge to Trump’s draconian tariff war. (IPA Service)
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