Rahul Jain & Ashok Rajani, respectively India head and managing director & partner, Boston Consulting Group
In today’s fragmented economy, tariffs have evolved from mere protectionist barriers to instruments of geopolitical strategy. The US-China tariff war, initiated during Donald Trump’s first term in 2018, triggered a decisive shift in global trade flows. Since then, China has incurred a cumulative loss of $150-plus billion in US trade, while other geographies—Mexico, Southeast Asia, India, and Canada—have absorbed the displaced demand. Amid heightened global uncertainty, several nations are embracing strategic self-reliance to insulate themselves from external shocks. This shift has only accelerated with renewed tariffs under Trump’s second term. The latest US decision to extend targeted tariffs on select Indian goods has been framed as a “levelling measure”. Still, it also creates a renewed impetus for India to deepen its market access discussions with Washington and solidify its position as a trusted trade partner. This move can become a catalyst for India to negotiate more favourable long-run terms while demonstrating its manufacturing resilience.
This shift is taking place alongside a broader reimagining of global supply chains. Amid pandemics, geopolitical shocks, and climate disruptions, the world is pivoting from hyper-optimised, just-in-time systems to more resilient, just-in-case models. For India, this is not merely a temporary boost—it is a strategic window to embed itself deeper into global value chains. Capturing this opportunity requires sectoral focus, strong cost and quality execution, enabling export, and policy alignment.
India has an opportunity to benefit in sectors such as auto components, electronics, and industrial machinery, where tariffs on Chinese exports to the US have opened competitive white spaces. India has a large opportunity, and this necessitates coordinated acceleration across all stakeholders.
The opportunity in auto components is especially notable. With $20 billion worth of Chinese exports at risk, Indian manufacturers could capture a portion of that, either through direct exports or by establishing operations in tariff-neutral regions. In select categories, India has already expanded its export footprint, supported by a competitive cost base and improving quality benchmarks. However, tapping into this demand requires a lead time of 18-24 months to meet global standards. Indian firms must invest in R&D, compliance, and deeper linkages with original equipment manufacturers and Tier 1s.
In pharma, India could gain share across imports of finished formulations and active pharmaceutical ingredients by either scaling domestic capacity, launching US-based operations, or friend-shoring partnerships with American and European firms. Adoption of new technologies (continuous vs. batch) and addressing the talent gap are key imperatives to make domestic manufacturing viable in the US. However, these opportunities are vulnerable to shifts in US policies. Despite the most recently proposed tariff on select Indian pharma products, the broader US objective of ensuring affordable, diversified drug supply chains aligns with India’s strengths. This creates an opening for deeper collaboration on technology transfer, joint ventures, and co-manufacturing models that can offset tariff pressures while reinforcing India’s strategic role in US healthcare resilience.
Over the past decade, the Indian government has taken decisive steps to bolster manufacturing. Flagship initiatives such as Make in India and the production-linked incentive schemes have catalysed new investments. To sustain double-digit growth through 2030—akin to China’s past trajectory—India must continue advancing logistics, energy reliability, innovation, and regulatory efficiency. Policymakers need to continue working to modernise land acquisition, improve micro, small, and medium enterprise credit access, and streamline compliance. At the same time, the private sector must step up as a key partner—invest in R&D, enhance quality standards, and develop a future-ready workforce. This synergy between state and industry will be critical to drive productivity and attract global investors.
India is also reshaping its external trade architecture to support this manufacturing pivot. India signed a landmark free trade agreement (FTA) with the UK recently, eliminating tariffs on 99% of Indian exports and advancing cooperation in tech and climate. India has earlier inked an FTA with European Free Trade Association nations—Switzerland, Norway, Iceland, and Liechtenstein—focused on tariff cuts and market access. In light of recent developments in US trade policy, the need for a comprehensive US-India trade pact has become more pressing—offering a path to turn short-term tensions into long-term strategic alignment and strengthen investor confidence on both sides.
Even as India scales up, it must prepare for the risk of aggressive dumping by China. With excess capacity and weakened US access, China may offload surplus steel, chemicals, and electronics into India. This risk is real, especially amid a slowing Chinese economy and persistent trade tensions. India should deploy a proactive strategy—real-time tariff monitoring, early warning systems, and smart protective policies. Last year’s example of mandating domestic solar modules in public procurement serves as a useful precedent.
India’s policy architecture will be pivotal. A focused industrial strategy can de-risk execution and elevate India’s role as a long-term partner. Key imperatives include:
Trade diplomacy, FTAs: Accelerate high-priority agreements (e.g. US, European Union).
Capital incentives: Extend to electronics, chemicals, auto, with special focus on sunrise sectors.
Factor costs: Develop efficient infrastructure to reduce factor costs and improve ease of doing business.
Anti-dumping vigilance: Deploy prompt trade remedies (e.g. APIs, solar modules, steel).
Anchor-led cluster development: Build industrial zones around committed anchor investors.
Unified trade promotion: Position India as a trusted, neutral sourcing base.
To thrive in this trade environment, India’s private sector must look beyond reactive adjustments and seize emerging opportunities at their inception. This means investing in sunrise sectors and building end-to-end value chains to drive greater domestic value addition. However, success will hinge not just on ambition, but also on execution—firms must sharpen the edge across cost competitiveness, product quality, innovation, and workforce skilling.
Tariffs can offer India a once-in-a-decade opening—but only if they are treated as tools for transformation, not temporary protection. The real test is not in recognising the opportunity, but in acting with the precision, urgency, and ambition required to reshape India’s role in the global economy.