India's path: country emerges as alternative to China amid trade war

As China andthe United States wage a trade war with an unpredictable outcome, India could emerge as a reliable trading partner in the East — and not just for Americans.

In April, during a family trip to India, US Vice President JD Vance met with Indian Prime Minister Narendra Modi. Both praised each other's efforts to conclude bilateral agreements in various sectors.

The European Union has also been eyeing the Indian auto market as a destination for cars produced by its members. Negotiations are reportedly progressing, with possible tariff reductions by India.

And confidence in India as a trading partner is on the rise. In a survey conducted by British firm OnePoll in January this year, 61% of 500 executives at American companies said they would prefer India to China if both countries manufactured the same materials.

According to the same survey, 56% of executives want India, not China, to meet their supply chain needs in the next five years.

On May 1, Apple CEO Tim Cook said that India will manufacture the majority of iPhones sold in the US, while iPads and other devices will originate in Vietnam.

Leonardo Paz, a researcher at FGV's International Intelligence Center, notes that India has indeed grown as a potential partner in the East. However, he emphasizes that this process, in addition to not being new, is not restricted to India alone.

“You have some Asian countries, especially Vietnam, Thailand, South Korea, which have been used a lot and have received a lot of investment from other countries to organize themselves as production platforms,” he says.

According to him, the transfer of investments to other Asian countries has been happening for some years now, due to the increase in the cost of Chinese labor and, consequently, of everything manufactured in China.

Arno Gleisner, director of Foreign Trade at the Brazilian Chamber of Commerce, Industry and Services (Cisbra), points out that India could replace China as a supplier of a wide range of products — both for the end consumer and as an industrial input.

Still, this is not an immediate solution. He believes that, in the short and medium term, this would not happen with most products. “To serve such large markets [the US and Europe] will require investment and time to do so, training of workers and technology transfer contracts and guaranteed supplies,” he explains.

Another factor that should be considered in India's attractiveness is the recent escalation of hostilities between the country and Pakistan. In April, India attacked Pakistan in response to a terrorist attack in the part of the Kashmir region it controls.

Both countries are nuclear powers and a wider and more intense conflict could impact local stability and even the interests of foreign investors in India.

Advances in US-India bilateral trade

Despite having initially been taxed at 26% in Donald Trump's tariff hike, the Indian government has shown itself open to negotiations with the US and other countries, including the European Union.

The country was included in the 90-day tariff pause granted by Trump and, so far, tariffs for India are the same as those for Brazil, at 10%. In itself, these three months would already be strategic and advantageous in relation to China, whose tariffs are at 145%.

Additionally, negotiations between the two nations have been progressing. Following the meeting with JD Vance, Narendra Modi's office said the two leaders "welcomed the significant progress in negotiations for a mutually beneficial bilateral trade agreement between India and the US."

The "continuous efforts" of both sides to enhance cooperation in areas such as energy, defense and strategic technologies were highlighted.

Negotiations increasingly controversial

In contrast, negotiations with China appear increasingly unfriendly. On April 22, Trump told reporters in the Oval Office that he would reduce tariffs on China, and the next day he said he was in talks with the Asian country. Chinese spokespeople quickly responded and mocked Trump's statements, denying any negotiations with the US and calling the reports fake news.

Trump then not only reaffirmed that negotiations were ongoing, but also claimed that Chinese dictator Xi Jinping had called him to discuss the matter. Once again, China said that there had been no negotiations with the US, nor had there been any phone calls between the leaders of both nations.

According to Leonardo Paz, when import substitution processes occur in a “natural and organic” way, within the rules of international trade, they do not generate instability. On the other hand, when they occur in a “completely forced” way, as in the current scenario, they can “create some kind of embarrassment”.

Friendly ports attract more investments

Amid the controversy, American leaders’ perceptions of China have been deteriorating. Today, 59% of companies see the Asian country as a risky bet for their trade chains. India is considered a risk by only 39%.

“Companies are looking at India as a long-term investment strategy rather than a short-term move to avoid tariffs,” said Samir Kapadia, CEO of India Index, the group that commissioned the OnePoll survey.

Leonardo Paz explains that the idea of ​​relocating production chains to countries that are political or commercial allies, to the detriment of those with which there are conflicts or that are high risk, is an old practice in international relations, known as friendshoring .

“India is certainly one of the countries that fits this context best, but there are others too, like Mexico and Bangladesh, in a certain way. But India is the most important,” he says.

Quality and economies of scale still weigh in China's favor

The growing interest in India, however, would not yet be enough to displace China's strength in international trade. Arno Gleisner, from Cisbra, believes that, even in the current scenario, China remains more reliable, supplying a wider range of products.

“China already has quality and a strong economy of scale. But this is a scenario that could change over time, with India following a similar path to that followed by China from 1980 onwards, and starting from a more solid base,” he assessed.

Leonardo Paz points out that China's attractiveness is due to its connection to the most efficient global supply chain at the moment. He also sees countries like Taiwan, South Korea and Vietnam emerging as options for the Chinese — not only for the United States, but for other countries as well.

European Union also has its eye on India

Although they have moved with less fanfare, other countries, such as the Europeans, have also shown interest in expanding relations with India. Since early April, the European Union has been negotiating a reduction in Indian tariffs on car imports.

Both sides have expressed willingness to resume negotiations on a trade deal to make the new tariffs viable. According to Reuters, India would be open to gradually reducing its import tariffs.

In total, the Indian auto industry sells about four million cars a year, and companies don't want to make it too cheap for Europeans.

The domestic lobby is pushing for the country to gradually reduce the tariff, from 100% to 70% and reaching 30% for vehicles powered by fossil fuels.

Regarding electric cars, they demand that tariffs be maintained for around four years, in order to not waste investments made in the sector — showing that the US is not alone in defending its tariffs.

Thus, faced with an increasingly tense global scenario, the search for "more predictable" trading partners has become a strategic priority, making India emerge as one of the most promising destinations for countries seeking new trading partners.