COUNTERING USA TARRIFF WAR & CHINESE ECONOMIC WAR

 

Here’s a practical, options-driven playbook India can use to handle a simultaneous U.S. tariff shock and Chinese economic pressure. I’ve grounded key points in current policy moves and recent data; citations follow the relevant paragraphs.

Executive Snapshot (What’s happening)

• The U.S. has imposed a baseline 10% tariff on all imports, layered with product-specific add-ons via new executive orders under a “reciprocal tariffs” framework. Independent estimates suggest these measures raise U.S. consumer prices ~1.8–2.1% in the short-run and have sharply lifted monthly U.S. tariff revenue. 
• U.S.–Russia talks in Alaska (Aug 2025) did not deliver clear de-escalation; the broader global trade climate remains volatile. 
• China has stepped up trade-remedy activity against Indian products while India remains one of the most active users of anti-dumping tools against China.

 

India’s Options: A Layered Strategy

1) Fast, defensive trade law tools (0–3 months)

A. Targeted, WTO-consistent retaliation & safeguards (U.S.)

• Prepare a calibrated retaliation list (as India did in 2019 over Section 232 steel/aluminium) focusing on politically salient U.S. exports to India (almonds, walnuts, select fruits, motorcycles/ATVs parts, etc.) while preserving inputs critical for Indian industry. Use rebalancing under WTO rules or bilateral carve-outs if Washington opens talks. 
• Launch product-level consultations seeking exclusions/waivers (precedent: U.S. exclusion processes in prior tariff rounds). Pair with Indian offers on standards cooperation or supply-chain assurances.

B. Anti-dumping / countervailing duty (CVD) surge (China)

• Accelerate AD/CVD probes where injury is evident (chemicals, metals, electronics sub-components), and deploy snapback safeguards where import surges threaten MSMEs. India already leads globally in such filings; keep them tightly evidence-based to withstand dispute settlement. 

C. Customs & standards as shock absorbers

• Tighten quality control orders (QCOs) and technical standards (WTO-TBT compliant) in sensitive categories—electronics, toys, critical chemicals—to slow injurious inflows without blanket bans.
• Fast-track port-level risk management to avoid hurting compliant importers.

2) Negotiation tracks (0–12 months)

A. U.S. track: narrow, sectoral deals

• Seek exclusions for high U.S.-dependence inputs (semiconductor tools/parts, medical devices components, aviation spares, critical chemicals).
• Explore managed trade quotas (temporary) for labour-intensive exports (apparel, leather, gems & jewellery) to cap U.S. price spikes while preserving Indian jobs.
• Leverage India’s role in IPEF Supply Chain Agreement (in force since Feb 2024) to argue for risk-reduction treatment, co-investment and trusted-partner status in certain critical goods. 

B. China track: pressure + de-risking

• Link market access to reciprocity on data security, standards, subsidies transparency, and improved conditions for Indian firms in China.
• Use triangulation: deepen value-chain links with Vietnam, Thailand, Malaysia, Mexico for components now sourced from China, to blunt coercion.

3) Diversify markets (0–24 months)

• Exploit new/advancing FTAs: lock in tariff preferences and rules-of-origin with partners to offset U.S. headwinds—e.g., India–UK deal (commitments to cut levies on large swathes of goods) and EU Trade & Technology Council workstreams that boost tech trade and standards alignment; keep momentum with GCC, EFTA, Australia upgrades. 
• Prioritize Africa & Latin America (FTA-lite cum MRAs, standards cooperation) for textiles, pharma, agri-products, light engineering.

4) Domestic cushioning for exporters & industry

A. Cost-down agenda (0–18 months)

• Cut logistics frictions: expedited port dwell-time targets, rail-freight rebates on export corridors, coastal shipping incentives.
• RoDTEP/ROSL top-ups for sectors with high U.S. exposure; time-bound, sunset-dated to stay WTO-safe.
• Expand export credit lines via EXIM and ECGC risk covers for market-diversification (higher insurance for non-U.S. markets while uncertainty persists).

B. PLI 2.0 micro-fixes (electronics, EVs, solar, APIs)

• Tie incentives to domestic value-addition and China-plus-one supply-chain integration.
• Co-fund tooling and testing labs (metrology, compliance) to cut certification costs.

C. Services hedge

• Shield India’s surplus engine—IT & business services—from any digital trade friction by ramping data-adequacy arrangements, cyber norms, and mutually recognized certifications with the EU, UK, Japan, ASEAN (de-risk reliance on U.S. demand cycles).

5) Macro & financial buffers

• Use the tariff window (which raises U.S. prices) to lock in multi-year contracts with U.S. buyers where India is cost-competitive (pharma generics, IT hardware assembly, specialty chemicals).
• Build FX and energy buffers: top up SPR and commercial stocks when prices dip; diversify crude cargoes away from chokepoints. (India’s SPR remains short of IEA’s 90-day norm—plan phased inland expansion.) 

6) Strategic industrial policy (1–3 years)

• Critical inputs substitution: rare-earth magnets, advanced chemicals, pharma KSMs—scale domestic capacity via viability-gap funding and assured offtake (government procurement + anchor buyer schemes).
• Standards leadership: push Indian standards into regional FTAs and TTC/IPEF forums to reduce compliance costs for Indian exporters
• Investment treaties 2.0: reopen select BITs focused on supply-chain security and expedited dispute resolution for manufacturing FDI.

 

What to Expect if India Retaliates

• U.S. inflation pass-through means Washington has political incentive to carve out exclusions if India retaliates smartly (hitting symbolic farm/state clusters). The White House’s own orders and trackers show a fluid tariff regime with periodic adjustments—space for deal-making exists. 
• EU & partners’ responses to U.S. tariffs signal that coordinated, rules-based pushback is possible; India should align messaging where interests converge (e.g., machinery, medical devices). 

Risk Map (where to be careful)

• Over-retaliation risk: broad hikes can boomerang on Indian MSMEs reliant on U.S. inputs. Keep counter-measures surgical.
• WTO litigation lag: useful for leverage but slow—pair with active diplomacy.
• China substitution risk: if Chinese inputs are curbed too abruptly, Indian exporters could face cost spikes; line up alternate suppliers first.

90-Day Action Checklist (concise)

1. Submit U.S. exclusion requests + propose sectoral MOUs for critical inputs. 
2. Notify retaliation list (limited, political salience high; protect domestic inputs
3. Open 5–7 AD/CVD cases where injury evidence is strongest (China-linked). 
4. Announce exporter relief package (RoDTEP tweaks, ECGC covers, port rebates).
5. Table an SPR expansion roadmap with inland caverns and private participation.
6. Accelerate India–UK FTA implementation, and lock TTC/IPEF pilots for standards/supply-chain projects. 

Key Statistics (at a glance)

• U.S. tariffs (2025): baseline 10% across-the-board; adjustments via EOs; material short-run CPI impact (≈1.8–2.1%). 
• Tariff revenue: U.S. Treasury intake up to $27bn in June 2025 from $6bn a year earlier (monthly). 
• India–China remedies: India led global AD probes vs China (record levels in 2024; more in Q1 2025). 
• Energy buffer gap: India’s SPR still below IEA’s 90-day benchmark; expansion advisable. 
• Bottom Line

A tariff war with the U.S. and an economic squeeze from China can be managed—not merely endured—if India combines surgical retaliation, rules-based trade defenses, rapid market diversification, and domestic cost-reduction with credible buffers (SPR, FX, credit). The near-term goal is to buy time and preserve jobs; the medium-term goal is to restructure supply chains so India emerges more resilient and less exposed to any one partner’s policy shocks.