The evolving global trade environment in 2025 presents India with a unique chance to strengthen its manufacturing and export capabilities. The US-China tariff war, ongoing since 2018, has reshaped trade flows, diverting demand from China to other countries including India. Renewed US tariffs on select Indian goods have further pushed India to deepen trade ties with the US and enhance its global supply chain role. This period marks a strategic pivot for India to embed itself firmly in global value chains.
Global Tariff Dynamics and Trade Realignment
Since 2018, tariffs have shifted from protectionism to tools of geopolitical strategy. The US-China tariff conflict caused over $150 billion in lost Chinese exports to the US. This void has been filled by Mexico, Southeast Asia, Canada, and India. Renewed US tariffs on Indian goods aim to level trade but also motivate India to negotiate better terms and prove its manufacturing strength.
Shift from Just-in-Time to Just-in-Case Supply Chains
Global supply chains are moving from highly optimised, just-in-time models to more resilient just-in-case systems. This change is driven by pandemics, geopolitical tensions, and climate disruptions. India can leverage this shift to become a stable, reliable manufacturing hub, not just a temporary beneficiary.
Sectoral Opportunities for India
India’s biggest gains may come from sectors like auto components, electronics, and industrial machinery. Chinese exports worth $20 billion to the US in these sectors are vulnerable to tariffs. Indian firms can capture this demand through exports or by setting up operations in tariff-neutral countries. However, meeting global standards requires 18-24 months of investment in R&D, compliance, and partnerships with global manufacturers.
Pharmaceutical Sector Prospects
India’s pharmaceutical industry can expand exports of finished drugs and active ingredients. Strategies include scaling domestic production, establishing US-based plants, and forming alliances with Western firms. Adoption of advanced technologies and bridging talent gaps are critical. Despite some US tariffs on Indian pharma, shared goals of affordable and diversified drug supply open avenues for collaboration.
Government Initiatives and Policy Reforms
India’s government has launched initiatives like Make in India and production-linked incentives to boost manufacturing. To achieve sustained double-digit growth through 2030, reforms in logistics, energy, innovation, and regulation are essential. Simplifying land acquisition and improving credit access for small enterprises will help. The private sector must invest in quality, R&D, and workforce skills to complement government efforts.
Trade Agreements and External Relations
India has recently signed free trade agreements with the UK and European Free Trade Association countries. These deals reduce tariffs and enhance cooperation in technology and climate. A comprehensive US-India trade agreement is now crucial to convert short-term tariff tensions into long-term strategic partnership and boost investor confidence.
Risks from Chinese Dumping and Protective Measures
China’s slowing economy and reduced US market access may lead to dumping of surplus steel, chemicals, and electronics in India. India must adopt proactive measures such as real-time tariff monitoring, early warning systems, and targeted trade remedies. Policies like mandatory domestic solar module procurement demonstrate effective protective strategies.
Strategic Imperatives for India’s Manufacturing Growth
Key priorities include accelerating trade diplomacy and FTAs, offering capital incentives in priority sectors, reducing factor costs through infrastructure, enforcing anti-dumping laws, and developing industrial clusters around anchor investors. Unified trade promotion can position India as a trusted sourcing base. The private sector must go beyond reactive measures and invest in end-to-end value chains.
Execution and Competitiveness
Success depends on India’s ability to execute with precision and urgency. Firms need to sharpen cost competitiveness, improve product quality, innovate, and upskill their workforce. Tariffs offer a rare opening for transformation, but only if India treats them as tools for long-term growth rather than short-term protection.
Questions for UPSC:
- Discuss in the light of recent global trade tensions how tariffs have evolved as instruments of geopolitical strategy beyond protectionism.
- Critically examine the impact of shifting from just-in-time to just-in-case supply chains on global manufacturing and India’s role in this transformation.
- Explain the significance of free trade agreements in enhancing India’s trade relations, and discuss the challenges and opportunities they present for India’s manufacturing sector.
- With suitable examples, discuss the risks of dumping by large economies like China on developing countries such as India, and comment on the effectiveness of anti-dumping measures.
