China’s US-bound exports could find its way into other markets, such as the EU and India
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US President Donald Trump capped his extraordinary tariff antics last week with a move on April 9 to freeze his ‘reciprocal tariff’ order on 56 out of 57 trade partners, for 90 days. China was not spared; the US has ended up imposing a 145 per cent levy on some of China’s goods, while sparing, if only for now, key imports such as electronics, smartphones, hard drives and chip-making equipment — an intriguing move that seems conciliatory towards US’ big tech firms such as Microsoft, Apple, Google and Dell. China did not lose a moment to retaliate, slapping a 125 per cent duty on US exports.
The hit on China and its fallout deserves some attention, because it is India’s top trade partner along with the US. China’s US-bound exports could find its way into other markets, such as the EU and India. After Trump’s April 9 decision, the tariff gap between China and the rest of the world could be as high as 135 per cent on some goods, as the baseline tariff of 10 per cent is what India and the others are faced with right now, on exports to the US. China’s exports of furniture, toys and garments to the US could head elsewhere, besides steel, on which India is contemplating a safeguard duty. India seems inclined to set up a ‘war room’ to ward off any influx. The EU, a bigger importer than the US of Chinese goods, is equally wary about Chinese dumping. Such vigilance could deepen China’s existing downturn, brought upon by real estate oversupply. It is hard to say whether China’s pre-emptive fiscal stimulus in 2024 can offset this export shock.
The world’s two largest economies are likely to drag down global growth, with China expected to grow at 4 per cent in 2025 and the US going into negative by the end of the year. If India seeks to turn China’s export decline into an opportunity (notwithstanding the global growth crisis), it must do the necessary groundwork. At present, India’s medium and small enterprises are not able to ramp up quickly to substitute a market gap. It is difficult, for instance, for India’s garments to benefit overnight from the duty hit on China, Vietnam and Bangladesh. As the latest Economic Survey has said, cleaning up the business environment for MSMEs must assume top priority.
The Centre could consider providing some short-term export subsidy to offset the tariff impact on margins. Banks should be persuaded to lend liberally to exporters. India’s electrical, garments and engineering exports need support so that they do not lose existing markets — not just in the US but also in other markets such as the EU, where competitors could compromise India’s market share. It cannot be said now whether the ‘tariff tantrums’ will lead to a diversion of investment from China and ASEAN into India. It takes a lot of time and money to shift base, and businesses will probably take that decision based on the final level of tariffs — of which nothing is known. In this situation of flux, India should protect its exporters to minimise the output shock. Nimble fiscal and monetary policy is called for.
Published on April 13, 2025
