By Subrata Majumder
US President Donald Trump’s tariff relaxation on India, in lieu of India’s less imports of oil from Russia, gives a new outlook to India- China trade relation. USA’s reduction of reciprocal tariff to 18 percent from 25 percent and withdrawal of penalty tariff of 25 percent on reducing import of crude oil from Russia, are likely to overlap between trade and national security issues in India-China relation.
Large imports from China are recognized pivot to growth of new industries in India, instead of burden for wide trade deficit. Large import from China is no more a threat. Instead, it turns benign and tends to be indispensable to the growth of new industries in India as well as new face in the export basket.
Traditional industries are shifting to back bench and new industries are emerging pillars for manufacturing and export growth. The sparkling growth in exports of electronic goods is a case in point. It surpassed traditional industries like textile, garments, leather and chemical products in the export basket. Over a period of a decade between 2014 – 2025, with the induction of Make in India initiative, electronic goods emerged the top gear for the growth in India’s export basket.
Electronic goods leapfrogged to 3rd position in the export basket in 2024-25, from 7th position in 2014-15. It ramped up its share in the export basket from mere 2.4 percent in 2014-15 to 9.4 percent in 2014-15. Production of electronic goods in India surged six fold – from US $ 21.3 billion in 2014-15 to US$127 billion in 2024-25. . India is the second largest manufacturer of mobile phone in the world.
Who drove the sharp growth in electronic industries in the country? It was not only PLI (Productivity Linked Incentive) scheme. Correspondingly, the growth relied on imports from China. China emerged the biggest supporter to the growth of electronic industry in India. It accounted for nearly 39.7 of India’s total imports of electronic goods from China, comprising of mainly critical component and parts, such as PCBs, display panels and semiconductor devices.
The current situation nudged India to have a second thought on Chinese investment in India. At present, FDI from China in India is permitted under restrictive policy regime. It is not permitted through Automatic Route due to security concern.
Besides electronics, China is the biggest source of imports of component and parts for manufacturing telecommunication and automobile, performing an important role as supply chain.
Indian engineering industries registered booming growth under Make in India regime. It was triggered by automobile industry, which contributed 7.1 percent to GDP. It is a gimmick. While China played a key role in supply chain for the growth of automobile industry in India, the major investors in automobile industry are Japanese.
Imports from China also played a significant role in re-shaping India’s export basket. Electronic and engineering goods have become significant role players for exports of the country. In 2024-25 electronics and engineering goods together accounted for 34.4 percent of total exports of the country, as compared to 15.3 percent in 2000-01. These led traditional industries like textile, garment and agriculture rallying behind, slipping to one-tenth of export basket in 2024-25 from one fourth in 2000-01.
Trump’s tariff relaxation is likely to bolster India’s manufacturing, relying more on Chinese supply chain. It is likely to give an edge over Vietnam. Hitherto, Vietnam was the core pipeline for China to re-route exports to USA, having high USA tariff burden in the first term of Trump’s Presidency.
Under Trump’s MAGA regime, Vietnam attracts lower tariff (20 percent) than India (50 percent), despite being the bigger exporter to USA. Vietnam accounted for 4.0 percent share of USA imports in 2024, against India’s share of 2.7 percent.
None the less, there is a catch. Vietnam attracts 45 percent transshipment tariff. It is a punitive tariff on goods which are rerouted through third country to disguise their true origin by changing merely packaging and avoid high tariff.
It is argued that success of Vietnam in American market was mainly due to backdoor entry of Chinese exports to USA. China was the biggest stake holder in rerouting exports through Vietnam, after it faced high tariff during first term of Trump presidency. According to a study, nearly 30.4 percent of Vietnam exports to USA was rerouted by China in 2022.
Given this, India pitches hope for an opportunity to outpace Vietnam in attracting China in supply chain. Electronic goods, including telecommunication equipments and parts, emerged the biggest item of India’s exports to USA in 2024-25 It accounted for almost one-fifth of India’s exports to USA in 2024-25, viz, 17.6 percent. Incidentally, the entire imports of electronic goods from India are exempted from Trump’s tariff woes.
Given the high transshipment tariff, one-third of Vietnam exports to USA will face higher tariff in USA. This leaves a wider space for India for export to USA. As India has emerged an important exporter of electronic goods to USA and has been exempted from US reciprocal tariff, Trump’s tariff relaxation will give an edge to India to challenge its nearest competitor Vietnam. (IPA Service)
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