Few questions are as revealing today as how the world’s two largest economies—the US and China—differ in their economic approaches.
In Breakneck: China’s Quest to Engineer the Future (2025), Dan Wang offers a useful lens. China, he argues, functions as an “engineering state,” where leaders and institutions think like engineers, prioritizing large-scale building, rapid industrial expansion and centralised problem-solving. This contrasts sharply with the US’s more process-oriented, rule-bound “lawyerly society”.
This engineered flexibility helps explain how China weathered successive rounds of US tariffs and emerged stronger, posting a record trade surplus of $1.2 trillion in 2025. Below is a look at the forces behind China’s trade resilience—and the lessons for India.
Strategic agility
China’s response to US tariffs in 2025 offers a clear example of this flexibility. The trade war pushed cumulative US tariffs on Chinese goods to a peak of about 145%, before easing to around 30%. China’s exports to the US fell by roughly 20%. Yet the export engine did not stall.
Instead, Chinese firms rapidly redirected shipments to alternative markets. Exports rose sharply to Africa (26%), the ASEAN bloc (13.4%), India (12.8%) and the European Union (8.4%). At the same time, US imports from countries such as Thailand and Vietnam surged, reflecting trans-shipments of Chinese goods routed through these economies.
India has shown resilience under tariff pressures as well, but via a different route. Its strategy has relied more on negotiating free trade agreements, expanding market access and strengthening bilateral trade ties. In 2025, India concluded trade deals with Oman and the UK and activated the FTA with four developed European economies—Switzerland, Norway, Iceland and Liechtenstein. A trade agreement with the US, however, remained elusive, though negotiations with the EU concluded.
While India’s approach emphasizes diplomacy and gradual integration, a recent Barclays report suggests that many newer FTAs may yield limited export gains due to relatively small trade volumes. China’s experience underscores the importance of building scale, logistics strength and competitiveness to enable rapid market switching when shocks hit.
Competitive capability
China’s reduced dependence on the US is also evident in the composition of its exports. Over the past decade, it has built dominance in fast-growing, technology-intensive sectors such as smartphones, consumer electronics and telecom equipment, alongside the clean-technology ecosystem spanning batteries, electric vehicles, and solar and wind systems.
These are precisely the segments where global demand is expanding fastest, driven by digitalisation, energy transition and climate commitments. As a result, even as exports to the US declined, strong demand elsewhere kept overall exports buoyant.
This strength was also visible in rare-earth elements. In 2025, China’s rare-earth exports rose to their highest level since at least 2014, even as it briefly curtailed shipments of select medium and heavy rare-earth elements from April—a move widely interpreted as a signal of strategic leverage over Washington—before easing restrictions.
India could similarly recognise that trade resilience comes less from tariff hedging and more from building deep capabilities in globally indispensable sectors.
Input advantage
Since joining the WTO in 2001, China’s export rise has rested on a multipronged strategy: deep integration into global value chains, large-scale manufacturing capacity, substantial state support and active exchange-rate management.
A vast labour force enables production at scale, from basic components to final assemblies, even as costs rise. High-quality infrastructure—ports, freight corridors and logistics hubs—cuts delivery times and costs. A relatively undervalued currency has further supported export competitiveness.
Crucially, imports have been central to this model. China imports capital goods, advanced machinery, intermediate inputs and critical technologies at scale, embedding them into export-oriented manufacturing. This allows firms to specialise, assemble efficiently and upgrade technologically over time.
For India, the lesson is clear. Policies such as PLI and Atmanirbhar Bharat are often interpreted as discouraging imports. China’s experience shows the opposite: high-quality imports are essential for export competitiveness. Recent rollbacks of quality control orders that created certification hurdles are a step forward, and improving access to imported inputs will be vital—especially for MSMEs.
Credit comfort
Exporting is capital-intensive. Firms must finance production at scale, manage long working-capital cycles, hedge risks, absorb payment delays, and invest in overseas marketing, distribution and after-sales networks. Access to domestic finance therefore plays a decisive role.
China’s domestic finance to the private sector stands at about 194% of GDP—close to Japan (197%) and the US (201%), and far above the UK (113%) and France (108%). This financial depth has allowed Chinese firms to dominate exports, operate across multiple geographies, withstand tariff shocks and scale volumes rapidly.
India presents a stark contrast. Domestic finance to the private sector stands at about 50% of GDP. Without easier access to finance, Indian exporters struggle to scale, diversify markets and sustain competitiveness.
Surplus risks
Despite the record trade surplus, concerns remain about the sustainability of China’s externally reliant growth model. Household consumption accounts for only about 39–40% of GDP, far below the global average of over 65%, while investment contributes close to 40%.
Domestic consumption has weakened amid slower growth, deflationary pressures, a prolonged property downturn and declining fertility rates. India’s growth model differs structurally. Private final consumption expenditure contributes roughly 60% of GDP, while investment plays a more moderate role at about 30–34%. Thus, while China exemplifies an investment—and export-driven model, India remains consumption-led.
Exports offer access to vast demand, but when global conditions turn adverse, economies heavily dependent on the external sector are more vulnerable than those anchored by resilient domestic demand. China’s experience offers valuable lessons on scale, logistics and input access—but India should avoid pursuing export growth at the cost of domestic consumption. That is one lesson it must not emulate.
Puneet Kumar Arora is an assistant professor of economics at Delhi Technological University. Jaydeep Mukherjee is a professor of economics at Great Lakes Institute of Management, Chennai.