In 2025, the ongoing trade conflict between the United States and China, spearheaded by President Donald Trump's administration since January, continues to reshape global economic dynamics. The trade war, marked by escalating tariffs and export restrictions, has significant ripple effects beyond the two superpowers, notably impacting India’s trade and industrial sectors.
India, a key emerging economy, finds itself at the crossroads of this geopolitical-economic tussle. The US has imposed steep tariffs on Indian goods since mid-2025, with tariffs reaching up to 50% on many products. This has led to a sharp decline in India’s exports to the US, with a reported 37.5% drop over five months, culminating in a low of USD 5.5 billion in September 2025 alone. Key sectors affected include textiles, gems and jewellery, engineering goods, and chemicals, which are vital contributors to India’s export economy.
Despite these setbacks, India’s overall export sector has demonstrated resilience. According to recent data, India’s cumulative merchandise and services exports reached approximately USD 413.3 billion from April to September 2025, marking a 4.45% year-on-year growth. This growth is supported by strong performances in electronic goods, petroleum products, and engineering sectors. Notably, India has diversified its export destinations, with significant year-on-year export growth to countries such as the UAE, Spain, China, Bangladesh, and Egypt. Spain, for instance, recorded a remarkable 150.81% surge in exports in September 2025 compared to the previous year.
India’s trade balance, however, remains challenged by rising imports, which increased by 11.34% in September 2025 compared to the previous year, driven by imports from China, UAE, and Saudi Arabia. The trade deficit has widened, underscoring the need for enhanced domestic manufacturing and import substitution strategies.
One critical dimension of the US-China trade war affecting India is the rare earth minerals sector. China’s recent tightening of export controls on rare earth elements—vital for high-tech industries including electronics, electric vehicles, and defense—has intensified supply chain vulnerabilities. China now restricts exports of 12 rare earth elements and related refining technologies, leveraging its dominant position in global rare earth mining and processing. India, which imports approximately 65% of its rare earths from China, faces supply risks, particularly in its burgeoning electric vehicle and electronics sectors.
In response, India is actively pursuing domestic initiatives to reduce dependence on Chinese rare earths. State-owned IREL Ltd operates processing units with a capacity of over 10,000 tonnes annually, and the government has auctioned seabed blocks in the Andaman Sea for polymetallic nodule exploration. Additionally, projects like the Rare Earth Permanent Magnet Park in Visakhapatnam and the Rare Earth and Titanium Theme Park in Bhopal are underway to develop a comprehensive domestic rare earth value chain.
From a strategic perspective, India’s position in the US-China trade war presents both risks and opportunities. The tariff-induced decline in exports to the US highlights vulnerabilities in overreliance on a single market. However, the diversification of export destinations and sectors indicates India’s growing global competitiveness. The International Monetary Fund’s recent upgrade of India’s GDP growth forecast to 6.6% in 2025 reflects robust domestic demand and export momentum despite global headwinds.
India’s manufacturing sector, particularly in electronics, machinery, and intermediate goods, is poised for expansion. Industry bodies like the Federation of Indian Export Organisations (FIEO) advocate for import substitution policies and enhanced export promotion strategies targeting Latin America, Africa, and ASEAN markets. Proposed free trade agreements with countries such as Chile, Peru, and Mexico aim to provide duty-free access and reduce dependence on the US market.
Looking ahead, India’s ability to capitalize on the US-China trade war hinges on several factors. Strengthening domestic manufacturing capabilities and supply chain resilience will be critical to mitigating tariff impacts and import dependencies. Expanding rare earth production and refining capacity can position India as a strategic player in global high-tech supply chains, reducing vulnerability to Chinese export controls.
Moreover, geopolitical developments under President Donald Trump’s administration, including potential bilateral trade agreements and tariff negotiations, will influence India’s trade dynamics. The timeline and scope of such agreements remain uncertain, necessitating agile policy responses and strategic trade diplomacy.
In conclusion, while the US-China trade war presents immediate challenges for India, particularly in export markets and critical mineral supplies, it also opens avenues for economic diversification and industrial growth. India’s proactive measures in expanding export markets, enhancing manufacturing, and developing rare earth capabilities underscore its potential to emerge as a significant beneficiary in the evolving global trade landscape.
According to ETV Bharat’s October 2025 report, India’s export sector growth amid global challenges and Vajiram & Ravi’s analysis on rare earths highlight the nuanced impacts and strategic responses shaping India’s trade trajectory in this complex geopolitical environment.
