News in Charts: An eye on India, as world trade is set for reconfiguration

The outcome of US efforts to redraw the international trading regime remain highly uncertain. They are likely to most directly impact the US itself as well as China, who may be left with the largest increase in tariffs once the dust settles. Over time, however, any reconfiguration may have a profound effect on one of China’s bordering nations. India, where the US Vice-President has undertaken a four-day visit, and hailed ‘very good progress’ on a trade deal. India, which is seen as one of the more protectionist large economies, may opt to liberalise in order to maintain access to the US market. It has already benefited with trade being increasingly diverted from China to other economies. This trend could accelerate, depending on the outcome of Sino-US trading negotiations.

The share of India GDP in world GDP has tended to be larger than its share of world imports.  India’s share of world GDP (3.5%) has remained higher than its share of world imports (2.8%) in 2024. That gap may seem relatively small. However, if it narrowed, with the import share rising, that would represent $168 billion in additional annual imports.

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There is no single reason for a relatively low import share. However, one factor for this may be historical policies that are intended to favour domestic production over foreign imports. At 10%, the applied tariff rate (simple mean on all products) is second highest in the original BRICS grouping, below only Brazil’s 13% and much higher than the US figure before ‘liberation day’. Given its large population and high rates of economic growth, greater access to the Indian market has been a policy priority for many economies around the world.

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The threat of US tariffs may be enough to convince India to open up, given that the US is its second largest trading partner in goods, where tariffs have an impact. India’s gross trade is slightly higher with China. Meanwhile, the large increase in trade flows with Russia will not have gone unnoticed. In the short term, the US may find it easier to displace Russia’s arms and energy exports to India than China’s exports to the country, which are centred on manufactured goods. An important question for the rest of the world is the extent to which any Indian trade liberalization applies to all trading partners, or whether it will apply just to the US.

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The upshot of trade negotiations may not only be increased openness to imports, but also more exports too. It is not yet clear how US negotiations will play out, but it is reasonable to think that Beijing will be left with higher tariffs than most countries. In that case, India may continue to benefit from efforts to diversify international supply chains. There is already evidence of derisking in the data, with India’s electronic exports to the US rising a lot more than their Chinese equivalent. At 10%, they still remain substantially lower, and so there is plenty of scope for this to run further. Apple’s attempts to produce more devices outside of China is one clear example of this trend. However, even in this type of scenario, it will take a long time for India to meaningfully catch up with China’s manufacturing ecosystem, which has been decades in the making.

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Much of the analysis regarding US efforts to redraw the international trading regime has focused on the impact this will have on the US and China. The consequences for India have received relatively little attention in comparison. Depending on how negotiations play out, this may turn out to have been an oversight.

The views expressed in this article are the views of the author, not necessarily those of LSEG.

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