India’s Economic Playbook in a Post-Trade War World

Navigating a New Global Trade Landscape

The global trade environment in 2025 is marked by heightened tensions and a departure from the multilateral frameworks that once underpinned international commerce. The resurgence of US-China trade hostilities, characterized by tariffs exceeding 100%, has led to an anticipated 80% decline in bilateral merchandise trade between the two nations this year. 

This decoupling is not merely a bilateral issue but signifies a broader fragmentation of global trade into competing blocs. Axios+1Reuters+1

In this context, India emerges as a potential stabilizing force and beneficiary of the reconfigured trade dynamics. With its expanding economy, strategic geopolitical positioning, and ongoing reforms, India can assert itself as a central player in the new global trade order.

The Shifting Trade Dynamics: Challenges and Opportunities

Global Trade Contraction

The World Trade Organization (WTO) projects a 0.2% decline in global merchandise trade volume for 2025, starkly contrasting the 2.9% growth observed in 2024. This downturn is attributed to escalating protectionist measures, particularly between major economies, leading to supply chain disruptions and increased uncertainty. Xinhua News+1Reuters+1

Trade Diversion and Realignment

The ongoing US-China trade tensions have prompted a significant shift in global trade patterns. Between 2017 and 2024, China’s share of US imports decreased from 21.9% to 13.8%, with US imports of tariffed Chinese goods falling by 28%. This realignment presents opportunities for alternative manufacturing hubs to capture market share previously dominated by China. Rhodium Group

India’s Strategic Positioning: Capitalizing on the Shift

Surge in Foreign Direct Investment (FDI)

India has witnessed a notable increase in FDI, with inflows rising to $55.6 billion during April-November FY25, marking a 17.9% year-on-year increase. This uptick reflects growing investor confidence in India’s economic reforms and its potential as a manufacturing and export hub. Business Standard

Advancements in Logistics and Infrastructure

India’s logistics performance has improved, ranking 38th out of 139 nations in the World Bank’s Logistics Performance Index (LPI) for 2023. Initiatives like the PM Gati Shakti and the National Logistics Policy aim to enhance infrastructure efficiency further, reducing costs and improving supply chain reliability. World Bank NDTV Profit 

Export Potential on the Rise

India’s global export share grew from 1.7% in 2015 to 2.9% in 2024. China’s share, by contrast, has plateaued around 14.3%. This suggests India is slowly but steadily carving out new niches in pharmaceuticals, chemicals, electronics, and services.

What India Must Do to Capitalize on It? 

1. Deepen FTAs Strategically

India’s recent FTAs with Australia and the UAE are a good start. However, it must push through the EU-India and UK-India FTAs to capitalize. Each deal opens up billions in market access, especially for services, textiles, and agri-exports.

2. Simplify Regulatory Bottlenecks

Trade facilitation is where India still lags. As per the World Bank’s 2023 Doing Business indicators, India ranked 68th in ease of cross-border trade. Customs digitization, logistics corridors, and uniform GST compliance need faster implementation.

3. Skilling & Tech-Upgradation

India can’t be China 2.0 by just offering cheaper labor. It must upskill its workforce in semiconductors, EVs, biotech, and AI. Initiatives like PM MITRA parks and Production Linked Incentives (PLI) are steps in the right direction, but execution must match intent.

4. Leverage Geo-Economic Neutrality

India enjoys strategic goodwill, unlike China, which faces scrutiny in Western markets. Its Quad alliance positioning, digital public infrastructure (like UPI and ONDC), and stable democracy are long-term soft power assets. 

5. Promote Sustainable Practices: 

Integrating environmental sustainability into trade and manufacturing policies can enhance India’s global competitiveness and align with international standards.

Seizing the Moment

The current global trade upheaval presents India with a unique opportunity to redefine its role in the international economic arena. By implementing strategic reforms, investing in infrastructure and human capital, and fostering diversified trade relationships, India can not only mitigate the challenges posed by global trade fragmentation but also emerge as a pivotal player shaping the future of global commerce.

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