India's missed trade opportunities

It is being overtaken in the race to capitalise on trade tensions between the US and China

- ALEXANDRA HERMANN

The US presidential elections, now a week away, could trigger a reordering in global trade, especially if Donald Trump is re-elected and ratchets up tariffs on China. This is raising expectations in India that it could benefit from an increase in US substitution demand, propelling its struggling manufacturing sector.

Trade tensions between the US and China aren't new—they've been escalating for years, especially since a wide range of bilateral tariffs was introduced in 2018-2019. The sectors targeted by tariffs overlap heavily with goods that are also exported by India; hence, the rising hopes of a healthy trade tailwind.

But those hopes have so far been disappointed. What's more, Oxford Economics thinks it's unlikely the next phase of the trade war will deliver a stronger boost.

For over a decade, and despite all political efforts, the contribution of the manufacturing sector to India's economy has remained broadly stagnant at 17 per cent, versus the goal under the Make in India scheme of lifting it to 25 per cent by 2025.

India's Asian peers have benefitted to a much greater extent from the US rerouting of demand away from China. Vietnam leads, followed by Taiwan and South Korea, with India in fourth place. Although India's total share of US imports rose by 0.6 percentage points (ppts) to 2.7 per cent between 2017 and 2023, the gap left by China was much bigger—its share of US imports dropped by around 8 ppts to just under 14 per cent.