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Editor’s Note: This article was originally published on April 9th. Since then, several new developments have emerged between the economies involved. The article has been updated accordingly to reflect the latest information.

On April 2, President Donald Trump announced a sweeping set of reciprocal tariffs, sending shockwaves through global markets and raising fears of a major trade war. Stock markets fell, and economists across the globe assessed the impact. Several nations responded swiftly—China, in particular, imposed its own retaliatory measures.

Now, the dispute between China and the US continues to escalate. On April 9, China announced that it will raise tariffs on US imports from 34% to 84%, effective April 10, in direct retaliation for the United States increasing tariffs on Chinese goods to over 100%.

According to a statement from the Office of the Tariff Commission under the State Council, the Chinese government strongly condemned the US action, stating: “China urges the US to immediately correct its wrong practices, cancel all unilateral tariff measures against China, and properly resolve differences through equal dialogue based on mutual respect.”

The statement went on to describe the US move as “a mistake on top of a mistake,” accusing it of seriously infringing on China’s legitimate rights and interests, undermining the rules-based multilateral trading system, and destabilising the global economic order. Beijing characterised the tariff escalation as a typical case of “unilateralism, protectionism, and economic bullying.”

Just after China’s move, President Donald Trump announced a 90-day pause on broad tariffs for most countries, bringing the tariffs down to 10%. However, the pause excludes China. Instead, he escalated pressure on Beijing by raising tariffs on all Chinese goods to 125%, further intensifying trade tensions.

Trump said on Truth Social that he is authorising a universal “lowered reciprocal tariff of 10%” as negotiations continued.

In this whole situation, India took a measured approach. In a public statement, the Department of Commerce said it is “closely evaluating the implications” of the US trade measures. Aligned with the government’s vision, the department is actively engaging with industry leaders and exporters to gather feedback, assess potential risks, and explore opportunities that may arise from the shift in US trade policy.

India has already emerged as a notable beneficiary of post-pandemic supply chain diversification and the fallout from earlier rounds of US-China trade tensions. With US businesses increasingly looking beyond China, India’s competitive labour market, growing manufacturing base, and large domestic consumer economy have made it a favored alternative. But the road ahead is unclear.

Tariff windfall or overflow risk?

According to Richard Rossow, senior adviser and chair on India and Emerging Asia Economics at the Center for Strategic and International Studies, India could stand to gain if new US tariffs on China enhance the relative competitiveness of Indian exports.

“India’s better tariff rate could make its products more attractive in the US market,” Rossow said. However, he warned that the country’s manufacturing capacity could come under strain if China and other markets begin offloading excess supply into India as they lose access to the US.

The key, he suggested, is how quickly India and the US can conclude a bilateral trade agreement. “If India and the United States can quickly negotiate their trade agreement, India has a chance to be in an outstanding position.”

The United States’ decision to impose higher reciprocal tariffs on China—could open the door for India to expand its footprint in global trade and manufacturing, according to the Global Trade Research Initiative (GTRI), a trade policy think tank. But the think tank warns that such gains won’t come automatically; India must pursue reforms to unlock this potential.

“Gains will not accrue automatically. India needs deep reforms for enabling scale production, domestic value addition and improving competitiveness to benefit,” GTRI report added.

Winner or loser?

As the US imposes higher tariffs on electronic imports from several major countries,  India’s tech hardware industry could become a stronger contender. According to a recent report by CLSA, a financial services firm, these changes could lead to a shift in global supply chains in India’s favour—particularly in the smartphone manufacturing sector.

The US has imposed higher taxes on Chinese goods. In comparison, India’s lower tariff makes it a more attractive option for global manufacturers, CLSA said. Currently, China, Mexico, and Vietnam account for 51% of US imports and CLSA expects companies to shift their supply chains toward nations with fewer trade barriers.CLSA sees this as an opportunity for India, saying the country is better positioned than many others to benefit from the shift.  In addition, trade deals—such as Vietnam’s proposal to remove all tariffs on US imports—could reduce India’s advantage, the report noted. The report noted that “…a retaliatory tariff by China could further accentuate the China +1 strategy.”

Growing geoeconomic alignment

Geopolitically, a new wave of tariffs may further deepen India’s economic ties with the US. While India has historically sought a balanced approach between great powers, Rossow believes market realities will push New Delhi closer to Washington.

“We wish it did not happen through force, but yes, I believe this tariff fight will bring the US and India closer together,” he said. “India needs the American market for its exports, so it appears the government will attempt to accommodate American demands for market access.”

India’s recent trade agreements with Australia, the UAE, and the Swiss-led EFTA group demonstrate its growing appetite for deeper international economic integration. Yet, what the administration of Donald Trump might ask in return remains an open—and politically sensitive—question. “The larger question- what else will the Trump Administration demand?”

“Agriculture market access will be difficult. And pushing India to announce purchases of American defense items and hydrocarbons as part of a deal may also prolong talks,” Rossow noted

Dollar dominance

While India has made moves to promote local currency trade—including rupee-based agreements with Russia and the UAE—Rossow suggests that a visible acceleration of this shift could backfire.

“The administration of Donald Trump has highlighted such moves as potentially triggering further trade sanctions,” he said. “I do not believe India will want to pursue alternative currency deals too visibly.”

Investment flows: wait and watch

Could India attract a wave of new foreign investment if companies exit China amid escalating tariffs? According to Rossow, it is too early for companies to make a decision.

“Companies take time to remake supply chains. So far the Administration of Donald Trump’s approach to trade has been hard to predict,” he explained. “It is too early for companies to take big decisions on relocating manufacturing until they have a clearer picture of which tariffs will remain and which could be alleviated through dialogue.” 

Balancing relations with China

Despite its growing alignment with the US, India is unlikely to let Chinese retaliation dictate its trade stance. The country has already taken steps to limit Chinese influence—banning apps like TikTok and curbing some imports, Rossow noted.

Rossow believes this trend will continue. “India has a large deficit with China, and Indian manufacturers have relatively little exposure to the China market,” he said. “I suspect India will manage its trade talks with the United States without much concern about China’s reaction.”

India’s response to the evolving trade environment will depend on multiple factors—from the speed of talks with the US to domestic capacity for increasing manufacturing. As supply chains shift and trade tensions intensify, policymakers and businesses alike will be watching closely. With the global trade order increasingly fractured, how will India balance practical approaches with ambitious goals?