India’s trade braces for an action-packed 2025

Growing at 14.5% in the April-November period this year to $252 billion, India’s services exports is a stellar performer. (Photo: Bloomberg)
Growing at 14.5% in the April-November period this year to $252 billion, India’s services exports is a stellar performer. (Photo: Bloomberg)

Summary

  • Amid EU's carbon tax and slowing consumption in Europe, a silver lining is the border disengagement with China this year

India’s external trade, navigating a phase of uncertainty owing to the European Union's new carbon tax on imports and slowing consumption in Europe, is set face further pressure. The US will likely seek lower tariffs in the coming year as President-elect Donald Trump, who has charged New Delhi with imposing high tariffs, assumes office in January.

However, a silver lining is the border disengagement with China this year, followed by a bilateral meeting between Prime Minister Modi and President Xi Jinping. That coincides with optimism among government economists about more manufacturing investments coming from China to India, which could boost the country's exports to developed markets.

Growing at 14.5% in the April-November period this year to $252 billion, India’s services exports is a stellar performer. Services imports, too, have gone up by the same pace. Merchandise exports, however, rose 2% to $284 billion, while imports saw an 8% annual increase.

A weakening rupee—the domestic currency depreciated by over 1.9 against the greenback since the beginning of the year, up to 23 December—augments export realisation of merchants in rupee terms, but also makes imports costlier. Widening trade deficit, or the amount by which the value of imports exceeds exports, at a record $37.84 billion in November, compared with $21.31 billion a year earlier, and a slower economic expansion in the September quarter could test the rupee further.

Moreover, renewed US-China trade tensions under Trump 2.0 are reshaping international supply chains. Initiated in 2018 during Trump's first term, the US-China trade war has disrupted global trade flows but achieved limited outcomes, presenting both challenges and opportunities for India.

Read more: How the Indian economy fared in 2024, in 9 charts

The trade war has significantly altered global trade patterns. Between 2017 and 2023, US imports from China dropped by $81.56 billion, yet China showed resilience, boosting its global exports by $1.1 trillion, maintaining its dominance in electronics, pharmaceuticals, and renewable energy, according to a Mint analysis.

Meanwhile, countries like Mexico, Canada, and Asean nations emerged as beneficiaries, accounting for 57% of the growth in US imports.

India also capitalized, with its exports to the US rising by $36.8 billion during this period, driven by sectors like electronics, pharmaceuticals, and engineering goods. But China remains the biggest source of imports for India. 

These trends underscore the need to strengthen India’s domestic supply chains and reduce dependence on Chinese intermediates. Initiatives like Atmanirbhar Bharat aim to boost local manufacturing and enhance export competitiveness in key sectors such as electronics, engineering goods and pharmaceuticals.

“The government is working to improve infrastructure, implement targeted policy reforms, and enhance the ease of doing business," said a senior commerce ministry official. “These efforts aim to position India as a global manufacturing hub, supported by initiatives like 'Make in India.'"

Yet, according to Pralok Gupta, associate professor, Indian Institute of Foreign Trade (IIFT), which operates under the ministry of commerce and industry, “If US imposes high tariffs on China, India may face collateral damage in the form of applicability of these high tariffs to India."

“In addition, imports from China may increase given China’s search for alternative markets to compensate for loss of US market," he said. But India’s current strategy of diversifying its exports destinations and sectors through selection of six sectors and 20 destinations is well suited in these uncertain times, he said.

India has identified chemicals, pharmaceuticals, electronics, automotive, industrial machinery, and textiles as pivotal sectors for achieving its ambitious $1 trillion manufacturing export target by FY30. These sectors are expected to benefit from various global trends, such as supply chain diversification and increasing domestic production capabilities, supported by government initiatives like the production-linked incentive (PLI) schemes.

India’s micro, small and medium enterprises (MSMEs) stand to benefit from the decoupling of US-China supply chains, particularly in sectors like textiles, electronics, and auto components. Production Linked Incentive (PLI) schemes and local manufacturing initiatives could help MSMEs tap into global markets.

“However, many MSMEs rely heavily on imports of intermediate goods and raw materials from China," said Vinod Kumar, president of the India SME Forum. “Escalation in US-China tensions could raise input costs, impacting MSME profitability. Government support in the form of subsidies, credit access, and skill development is crucial for MSMEs to compete globally."

“This strategic focus will be vital in ensuring that MSMEs can effectively contribute to and benefit from India's evolving trade scenario under the "Trump 2.0" administration," said Kumar.

However, the new regime is expected to boost growth in the logistics sector, as India's expanding trade will significantly impact the global logistics industry, driving demand for optimized freight capacities, improved multimodal connectivity, and advanced technologies such as AI-driven tracking.

“This growth will necessitate adopting integrated solutions and digital tools for efficient supply chain management," said Jitendra Srivastava, CEO of Triton Logistics & Maritime Pvt. Ltd. “Sustainability and innovation will be key to supporting India's growing trade footprint," Srivastava added.

Despite tariffs, US manufacturing has seen little growth, and the country’s reliance on foreign goods persists. Experts argue that reshaping global supply chains will require years of strategic effort. For India, navigating these complexities with diversified export destinations, strengthened supply chains, and strategic international collaborations will be critical in emerging as a global economic powerhouse.

"Section 232 tariffs imposed in 2018 under the Trump administration included 25% duties on steel and 10% on aluminum imports, impacting stainless steel products globally. As Trump is set to return, proposed extensions to tariffs on Canada, Mexico, and additional duties on Chinese imports could reshape global trade," said Anubhav Kathuria, managing director, Synergy Steels.

“India, which supplies 8.9% of US stainless steel imports, may face heightened competition and price pressures as higher tariffs redirect Asian exports to India and Europe. This could temporarily raise domestic steel costs, affecting sectors such as electronics and energy. Indian producers may also encounter oversupply challenges similar to those faced in the EU," said Kathuria.

Between 2017 and 2023, US imports from China fell by $81.56 billion, dropping from $519.52 billion to $437.96 billion, reducing China’s share of US imports from 22.45% to 14.39%. Despite this decline, overall US merchandise imports grew by 31.51%, increasing from $2.31 trillion to $3.04 trillion. This represented a $763.2 billion increase in global imports—nearly 10 times the drop in imports from China.

Meanwhile, China’s global exports surged by $1.1 trillion, growing from $2.3 trillion to $3.4 trillion during 2017 and 2023, offsetting its losses in the US market. In contrast, the US global exports increased by $383 billion, growing from $1.31 trillion to $1.69 trillion during the same period.

“This trend highlights that while tariffs reduced US imports from China, they did not reduce America’s overall reliance on foreign goods. Instead, trade shifted to other countries, leaving US manufacturing and job creation largely unaffected," said Ajay Srivastava, founder of GTRI.

Read more: India in 2025: Challenges are resurfacing but so are opportunities

Despite benefiting from the trade war, India has also faced substantial challenges. The US sought to reduce its trade deficit with India, and under Trump’s protectionist agenda, several tariffs were imposed on Indian products, including steel and aluminum.

The US also removed India from its Generalized System of Preferences (GSP) list in 2019, which gave India preferential access to the US market for certain goods. This decision had a significant impact on key Indian export sectors, particularly agriculture and textiles. In retaliation, India imposed tariffs on US products, including almonds, apples, and motorcycles.

Additionally, the growing focus on national security led to tighter restrictions on sensitive technologies. The US introduced export bans on crucial technologies like semiconductors and software, which affected Chinese companies. India found itself in a favorable position, with Chinese firms looking to India for alternatives in these key sectors, giving India an opportunity to strengthen its tech industry.

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