2 weeks Ago
As US-China trade enters life support with both Xi and Trump refusing to blink, India finds...
Read More The timing of the visit couldn’t be more significant. The United States and China are locked in a full-blown trade war — and with no off-ramp in sight, the world is watching as the two superpowers brace for a long, bruising economic battle. The question is no longer if but who can endure more pain.
But where there’s disruption, there’s opportunity. For India, this could be a moment of profound economic realignment. HOW DID WE GET HERE? It all started on April 2 — dubbed “Liberation Day" by Donald Trump — when the US president rolled out a sweeping tariff package.
Nations across the board, including India, were hit. India faced tariffs of 26%, while China was slapped with an additional 34%. Vietnam, Taiwan, and Japan were also on the list, with tariffs ranging from 24% to 46%.
The goal? Strong-arm countries into slashing their tariffs on American goods and chip away at the US’s $1 trillion trade deficit. But the world had other plans. Markets tumbled, businesses panicked, and even Trump’s allies urged him to hold back, fearing a recession.
China, however, didn’t flinch. It retaliated with its own 34% tariff hike on US goods, sparking a tit-for-tat escalation. Trump countered with a blistering 50% hike, taking the total tariff on Chinese goods to a staggering 104%.
China then upped the ante, imposing an additional 84% — making it clear this was no longer about trade, but pride. Xi Jinping had decided to call Trump’s bluff. By April 9, Trump was looking for a way out.
To save face, he pulled a strategic switch: he raised tariffs on China even further, to 145%, citing its “lack of respect" — while slashing tariffs for over 75 other countries, including India, down to a baseline of 10% for 90 days. This trick, which China would later respond to with 125% tariffs, would make China look like a stand-alone fool that retaliated prematurely and ended up with the worst deal of all — all while masking the sting of Trump’s retreat. The world let out a sigh of momentary relief.
Trump had scaled back tariffs on day one itself and given up substantial leverage as a result, not to mention shown signs of bending under pressure. Suddenly, his global tariff war took a backseat, and the US-China trade war took centre stage. DECOUPLING IN REAL-TIME The US-China trade, at these tariff levels, is effectively on life support.
Instead of giving Trump time to prepare for a decoupling scenario, China has leveraged its weight and hit the brakes on the trade relationship. With the decoupling being so abrupt, China holds strong cards against Trump that he must deal with. China has a strategic and exclusive edge over crucial rare earths that it has partially banned the US from accessing, and may ban all in the future.
It holds $750 billion in US treasury bonds and can use this reserve as a geopolitical lever, potentially inflicting damage on US markets, economic growth and the dollar as well. Treasuries are essentially US government debt, that it raises every year to pay its bills, pay salaries. That’s how it gets away with spending more than it makes in tax revenue, with a budget deficit of over $1 trillion.
China knows this, and that’s why it is suspected of having been strategically offloading treasuries in recent days. Such a prospect is described by US officials as an “act of war". The leverage does not end here.
China produces several strategic materials that power the US economy, including its defence sector. Alternatives will be difficult to find within weeks even though trade is likely to dry out with pressure on both sides to make a deal. But with no off-ramp in sight, things are getting complicated.
That’s because this altercation has turned personal. Xi demands respect. Neither leader has picked up the phone yet.
What started with Trump playing hardball, has turned into an eager wait for Xi to reach out. Reports say that the Trump administration asked Xi’s officials to request a Xi-Trump phone call, which China struck down. Just let that sink in.
Trump’s guys asking Xi’s guys to request Trump for a phone call with Xi. Who is actually making the request here? Moreover, with an exemption on phones, laptops and other electronics from China, Trump has shown signs of being unprepared. While Trump wants China to make a deal, Beijing has made it clear that it will not be making deals this time.
It is instead using this moment to stimulate internal consumption, a relatively weak link of China’s export-dependent economy. It sees this as an opportunity to reduce dependence on the US market — that’s why Xi is busy engaging with the EU and Southeast Asia right now. At the same time, China is using war-like rhetoric, invoking Mao Zedong’s lines: “No matter how long this war is going to last, we’ll never yield.
.. We’ll fight until we completely triumph.
" Note that this speech was made at the peak of the Korean War, when the US and China were in direct conflict. If it has to be a zero-sum game, China is turning out to be a formidable rival in this Cold War, and not a relatively easy one like the USSR. With tariffs saturated to such a degree, tensions could spill over on the military front, with the South China Sea and Taiwan being the most vulnerable.
The fact is, there is no quick pill to bring an end to this fallout. It has all boiled down to the question of who can endure more pain, the US or China. INDIA’S STRATEGIC OPENING This trade war indicates that a global economic upheaval is inevitable and will last for years until it settles.
For India, this moment could be transformative, with both opportunities and pitfalls on the horizon. As the world’s two largest economies decouple, New Delhi has a rare chance to reshape its global trade footprint. Consider this: China is the world’s largest exporter, accounting for $3.
4 trillion in global trade. The US alone imported over $462 billion worth of Chinese goods last year, or 16% of its total imports. With tariffs at 145%, that pipeline is poised to shrink dramatically, creating a supply vacuum — and India, facing only 10% tariffs and already in trade talks with the US, is well-positioned to step in.
This is India’s moment to pitch itself as a manufacturing alternative. But seizing this opportunity will require bold and fast action: offering production-linked incentives, reforming labour laws, strengthening contract enforcement, and positioning itself as a dependable business destination. The payoff could be huge, both in terms of jobs and geopolitical leverage.
Beyond the US, the shake-up also gives India room to rebalance its trade relationships with China and ASEAN, both of which currently run substantial surpluses against India — $100 billion with China and $44 billion with ASEAN. Reports suggest that Beijing has already sent feelers to India about addressing this imbalance. Meanwhile, the UK, Australia, and the European Union are accelerating their own trade talks with India — giving New Delhi a stronger hand at the table.
THE PITFALLS AHEAD But opportunity doesn’t come without risks. India must watch out, as China, locked out of the US market, will reroute its surplus goods to other countries, including India, in the form of dumping — undercutting local producers and swelling India’s already large trade deficit. India will also face fierce competition from other Southeast Asian nations like Vietnam and Indonesia, both of which have historically been quicker to adapt and attract global manufacturing relocations.
India missed the bus during Trump’s first trade war, with Vietnam walking away the biggest winner. But this time, the story might be different. India has already made notable strides, particularly in electronics.
Apple and its suppliers like Foxconn and Pegatron are ramping up their India operations, turning the country into a meaningful player in the global supply chain. These are uncertain times. Stock markets are on edge.
Institutions like the World Trade Organisation are mute spectators. And the line between friend and foe in global trade is growing fuzzier by the day. But as the world’s economic plates shift, India must focus on the possibilities, not the panic.
Because when life gives you lemons, make lemonade..
