How China Overtake US to Become India’s Top Trading Partner in 2024?

27 May 2024

Since COVID-19, the government of India has taken several steps to improve the domestic manufacturing of goods. To consider this, the govt has developed special economic zones, financial help, business-friendly rules and regulations, anti-dumping, and countervailing duties, etc. Despite these efforts, India’s reliance on Chinese goods has grown exponentially. The bilateral trade performance between India and China has outperformed the USA with which India enjoyed a trade surplus status.

China’s strong manufacturing base and cost-friendly availability of its goods continue to present the toughest competition to Indian manufacturers, and its export market. Let's analyze the economic depths of India and China's bilateral trade, and how China’s economic influence in the region becomes undeniable.

India- China: Largest Trading Bloc In Asia

Asia is one of the most important trade blocs in the world, controls around 40-45% of the global export market, consists of three out of the five biggest economies of the world, and ensures seamless supplies of goods across the continents. Let’s explore India and China’s trade.

If we look at the total trade stats for the last five years, China exported more than USD 506.2 billion of goods to India, whereas India exported only USD 90.5 billion of goods to China. This USD 415 billion trade deficit indicates the affordability of Chinese goods which have outperformed the local Indian market. From 2021 to 2023, China’s exports to India increased by 21.1%, and imports fell by 20.8 % in the same year.

***Value USD Billion

Top Commodities Export Between India and China

India’s bilateral trade balance remains negative and favors China, and still the latter continues to be India’s most significant trading partner. A closer analysis reveals fluctuations in product exports. Here is a quick analysis of India and China commodities exports. 

Parts of wireless telephones have become the most exported commodities to India by China with USD 3.1 billion, in 2023. Panel for organic light emitting diodes exponentially increased by 104.3% in 2023 from 2023. On the other hand, camera module exports increased to 71.7% in the same year. China’s export of Lithium-ion accumulators stood at USD 2201 million in 2023. This 22.4% increase shows India’s EV electric car future that has a dependency on China.

***Value USD Million

It’s a well-accepted economic fact that China enjoys an upper hand in export business to India with USD 415 billion of trade deficit. Despite this, Indian manufacturers managed to find a marketplace for their goods in the Chinese market. Here are the top commodities exported to China from India.

There is a significant growth of 251 % and 181.2% for cotton yarns, iron ores and concentrates exports to China from 2022 to 2023 by India. On the other hand, telephone sets exports increase from USD 323 million in 2022 to USD 524 million in 2023.

***Value USD Million

India and USA: A Tale of Dynamic Trade Pattern

Bilateral trade performance between India and the USA witnessed an upward and downward trade trajectory. India’s top commodities export to the USA increased whereas the import commodities decreased. USA exports to India declined due to many economic factors, including cost-effective goods from China, the strengthening of the dollar in comparison to other currencies, and other parameters. Here are the last two years' comparison of USA and India trade performance.

Electrical machinery and equipment exports to the USA have doubled from USD 6 billion to USD 12 billion in the last two years. In the list of the top products exported, Iron and steel declined from USD 3.4 billion in 2022 to USD 2.8 billion in 2023. And the export of pharmaceutical products to the USA increased by 21.1 in the same year. This drastic increase shows immense export opportunities for Indian manufacturers in the USA market.

***Value USD Billion

The way Indian exporters are building a strong commodity base in the USA market, exploring trade opportunities, and expanding their business for lasting growth. On the other hand, the USA struggles to get direct access to the Indian market, due to higher tariffs, price-sensitive markets, complex trade regulations, and competition from China.

Here’s a quick glimpse of the USA’s top five commodities exported to India for the last two years. There was a sharp decline of 32% (USD 5.2 billion) in crude oil exports from the USA to India from 2022 to 2023, and organic chemicals declined by USD 500 million in the same year. Parts of air and spacecraft increased by 8.3% in 2023, compared to the last year.

***Value USD Billion

What are India’s Steps to Boost Export?

 Production Linked Incentive Schemes

To safeguard the interest of domestic manufacturers and promote export activity from India to foreign markets. The government has introduced various PIL schemes to promote made-in-India concepts, for instance, a USD 10 billion scheme for semiconductors, and around USD 2 billion for pharmaceutical products to make India self-reliant in Pharma products.

 Free Trade Agreements

India is pursuing trade agreements with new emerging markets to boost exports, attract investment, and diversify trading partners. Recently, India signed a Comprehensive Economic Corporation Agreement with EFTA countries in 2024, and India-Australia ECTA in 2023.

Make In India Initiative

This aims to prepare the economic plinth for domestic manufacturing and attract foreign companies to start their production unit in India.

 Market Access Initiative Scheme 

This scheme focuses on promoting export activity by offering assistance for specific product exports and counties through market research and support activities.

 Anti-Dumping Duties

To regulate unfair trade practices and save the interest of the domestic market, the government imposed anti-dumping duties on different types of Chinese goods such as wheel loaders, gypsum, tiles, pentaerythritol, etc.

Despite several steps being taken to reduce India’s dependency on Chinese exporters, Indian manufacturers are becoming dependent on Chinese goods. This dependency is increasing year on year, here’s why –

Competitive price of goods: it’s noticed that China with its strong manufacturing power, provides products at affordable prices than their competitors. 

Strategic Location: Being close to Indian territory, allows faster and more affordable goods movements.

Wide Variety of Goods: Chinese businesses offer a wide variety of goods ensuring a stop shop for Indian businesses that need raw materials and refined products for their business operation.

Thus, it becomes crucial for the Indian government to implement gradual economic and monetary policies to reduce import dependency from China. To achieve this, the government must focus on manufacturing power, business environment, and goal-oriented policies to support small and big businesses across the boundaries.