India’s trade with the U.S. and China reached $120 billion and $118 billion respectively in fiscal 2024, doubling over the last decade. However, the similarity ends here, Crisil said, as it notes hat India has a $35.3 billion trade surplus with the U.S., while it faces an $85.1 billion trade deficit with China.
Trumponomics and trade shifts
The revival of Trumponomics under US President-elect Donald Trump once again raises questions about global trade dynamics. Trumponomics has protectionism, higher tariffs, and a focus on local manufacturing as key agenda on table. Trump’s proposed tariffs of 25% on products from Mexico and Canada and 10% on Chinese goods reflect his commitment to reshaping trade relationships.
These measures, while some may call it as ‘radical’, however, offer India unique opportunities. India has shown willingness to provide easier market access to U.S. firms, provided Washington reciprocates. During Trump’s earlier tenure, India and the U.S. worked towards a limited trade accord, setting the stage for deeper economic engagement.
Drawing from past precedents, there is a likelihood for India to be a net beneficiary from this eventuality, Debopam Chaudhuri, Chief Economist of Piramal Enterprises, believes. You can read more about it here – Trump’s trump card can actually aid India’s growth
India’s uneven trade balance
Total merchandise trade with the U.S. reached $120 billion in fiscal 2024, closely followed by China at $118 billion—its highest level ever, Crisil noted. While trade with both partners has doubled in the last decade, their underlying dynamics reveal sharp contrasts.
Trade Surplus vs. Trade Deficit
India enjoyed a trade surplus of $35.3 billion with the U.S. in fiscal 2024, driven by robust export growth. In contrast, India’s trade deficit with China surged to $85.1 billion, the largest with any trading partner. While the trade surplus with the U.S. has grown at an average annual rate of 9.8% over the last decade, the deficit with China expanded even faster at 11.1%.
Divergent Export Trends
Exports to the U.S. have seen broad-based growth across sectors like machinery, pharmaceuticals, electronics, and semiconductors. In contrast, exports to China have stagnated despite doubling imports. Key categories such as cotton and mineral oils have experienced sharp declines in exports to China, highlighting structural trade imbalances.
Import Trends
India’s imports from the U.S. have largely centered on mineral fuels, gems, and machinery, with recent years showing slower growth in machinery imports. Imports from China, however, continue to be dominated by machinery, plastic articles, and organic chemicals, reflecting India’s heavy reliance on Chinese manufacturing inputs, Crisil noted.
Source: Ministry of Commerce and Industry, CEIC, CRISIL
The Impact of Trade Wars
The global trade landscape underwent significant shifts after the U.S.-China trade war in 2018. Higher tariffs and trade barriers on Chinese imports forced global supply chains to realign. For India, this presented both challenges and opportunities.
While increased Chinese surpluses found their way into Indian markets, the U.S. became a more significant trading partner. India capitalised on the redirection of global trade flows, particularly in sectors like electrical equipment, electronics, and machinery. However, this period also underscored vulnerabilities in India’s trade model, with certain exports, such as textiles and seafood, slowing significantly, Crisil said.
India’s policy response to global trade disruptions has been multi-pronged. Initiatives like the production-linked incentive (PLI) scheme aim to boost domestic manufacturing and reduce dependence on imports. These measures, combined with efforts to strengthen bilateral trade, have helped India navigate global shocks.
In its trade with the U.S., sectors such as pharmaceuticals, semiconductors, and electronics have emerged as bright spots. With China, however, India’s export basket remains limited, even as imports surge. The imbalance underscores the need for diversification and value addition in India’s export portfolio.
What lies ahead for India’s tale of two trade partners
India’s tale of two trade partners offers valuable insights into the complexities of global trade. The U.S. presents an avenue for balanced trade, driven by high-value exports and growing imports of technology and energy resources. With China, the relationship is marked by dependence on imports and limited export growth, pointing to the need for corrective measures.
The lesser-known fact in India’s trade story is the divergent paths these relationships have taken. While the U.S. has become a strategic trade partner with balanced growth, China remains a source of significant trade imbalance. As India pursues self-reliance and builds resilience through reforms and incentives, bridging these gaps will be critical to sustaining its economic momentum.