Legal Implications Of The USA's Tariff War – From China To India

On January 20, 2025, President Trump commenced his second term with the issue of America First Trade Policy Memorandum¹ outlining plans for additional tariffs on China, Canada and Mexico, citing reasons of illegal migrants and drugs in the United States of America (USA)². Effective February 2025, USA imposed additional 10% tariff on all Chinese imports³ and 25% tariff on all steel and aluminium imports⁴, countered by China with a 15% tariff on Liquified Natural Gas, coal; 10% on crude, farm equipment; and an anti-trust inquiry into Google⁵, aggravating the ongoing USA – China Trade war (Trade war). The Trade war began in 2016 to safeguard USA's economic interests and technological advantages, becoming more belligerent in 2018–19⁶ when US imposed tariffs on China and vice versa, targeting US Dollar (USD) 450 billion in bilateral trade which abruptly changed market conditions for numerous internationally traded products. Biden administration continued to levy tariffs on China on electric vehicles, batteries and Artificial Intelligence chips. Consequently, India has witnessed increased exports and attracted businesses seeking alternatives to China. However, since April 02, 2025, USA has threatened reciprocal tariffs on multiple countries including India. These shifts have triggered a global trade war, which will continue the legal and regulatory upheaval in international commerce for India, particularly around complex tariff compliances, foreign investment and trade regulations.

A burgeoning economy with increasing global trade engagements, India's opportunities⁷ are hindered due to need for labour intensive jobs, slow growth of local manufacturing, stringent tax and regulatory compliances and evolving domestic trade policies. To reduce India's reliance on imports, Modi's administration has imposed tariffs on other countries and incentivising Make in India and other production linked initiatives. In 2020, amidst one of the most brutal confrontations in decades at the Himalayan border with China, India imposed severe trade restrictions⁸on China, including a bold ban on 59 Chinese technology applications. Modi's visit to USA in February 2025 on invitation of the USA, shows promise for a strong bilateral economic partnership⁹. Also, the Centre and the State Governments are entering into new trade agreements with foreign counterparts, to supplement India's trade and manufacturing sector alongside its expanding services. The comprehensive MSME¹⁰ policies issued by States like Telangana and Andhra Pradesh in 2024, are promoting sustainable growth and ease of doing business (EoDB) in India. A Bilateral Trade Agreement (BTA) is proposed jointly by USA and India to resolve trade barriers and tariff issues¹¹. In light of the above, there is a need to understand how this global trade conflict has affected Indian economy and its legal implications for India.

Impact on Global Trade Dynamics

The prominent outcome of this Trade war was a fallout between USA and China relations and seeing India as the replacement for USA's economic needs. Estimates show an approximate 10% reduction in USA's imports from China¹² during 2025 to 2027, primarily impacting the semiconductors, pharmaceuticals, steel and aluminium industries, causing China to flood its low-priced products in India. In addition, the reciprocal tariffs from USA, could disrupt India's efforts to develop its manufacturing sector as an alternative to China. Since 2017, the International Trade Centre data shows that China's exports to the USA have declined by 8.5 percent and its exports to the rest of the world rose by a statistically insignificant 5.5 percent. Overall global trade increased by 3 percent, USA's exports to China fell by 26.3 percent while exports to the rest of the world increased modestly, by 2.2 percent¹³, as the companies are moving to countries like India, Vietnam, and Mexico, especially in electronics and agriculture. India's exports in pharmaceuticals, electronics, electricals, automotive components, apparel, textiles, home decor and toys have shown considerable growth. Also, signing of new trade regulations and trade agreements is providing global market access. However, due to the global trade conflict, market volatility and economic uncertainties will continue to affect the business confidence, as seen in cautious investment strategies, contributing to slower growth in India.

Implications of the Trade war on India

As the ongoing Trade war is presenting India with opportunities in global trade, it is also imposing challenges of reciprocal tariffs and of a developing nation in reshaping India's policies and regulations¹⁴.

Opportunities: India has witnessed additional increase in export and manufacturing opportunities, job creation and foreign investments since the Trade war.

1. Increased Global Trade: India's exports have been showing a steady increase since 2015. In the Financial Year (FY) 2023-24, it was USD 778 billion, where exports to the USA amounted to USD 75.81 billion¹⁵, to Europe were USD 98.88 billion and to NAFTA¹⁶ were USD 86.69¹⁷. Textiles industry contributed to 12% to the country's exports¹⁸, an increase from 10.6% in FY 2021-22, surging to USD 44.4 billion, a 41% increase from FY 2020-21, mainly to the USA, Europe and Bangladesh, reinforcing its traditional position in textiles. Similarly, India's share in Pharmaceuticals was 5.71%, i.e. USD 26.5 billion in FY 2023-24 as compared to USD 25.4 billion in FY 2022-23, due to demands in the USA, Belgium, South Africa, UK, and Brazil.Top of Form India's has been an exporter of pearls, precious stones, metals, coins, which increased to USD 10.17 and electrical and electronic equipment exports reached USD 9.89 billion in 2023, mainly to the USA. Another such Industry is toys, reaching USD 500 million in FY 2023-24, a 239% increase in 2023 compared to 2015¹⁹, mainly to the USA, UK and Germany.
2. Expanding Manufacturing Sector in India: USA's capital decline into China²⁰ since 2016, aggravated further due to the COVID-19 pandemic after 2021, which created severe geopolitical tensions with China. India's efforts to supply free vaccines to nations in need marked its reliance in global crisis. India has emerged as the preferred destination for global manufacturing due to its lower labour costs, abundant natural resources, and favourable Foreign Direct Investment (FDI) policies, akin to China's advantages. Major Top of FormBottom of Formcompanies that have shifted manufacturing capabilities from China to India include Apple Inc., Samsung Electronics, Boeing, Sony Corporation, Hewlett Packard Enterprise and Dell Technologies, showing the real time shifts.
3. Increased Investments and Cross Border Transactions: The FDI inflows are showing a systematic increase since 2000 in India. From 2000 to 2024, FDI crossed 1 trillion USD²¹, based on Government of India's analysis. Also, as per research studies, the Trade war led to an increase in FDI by approximate 40%²² in India, with major investments in the services sector, computer software and hardware, and trading²³. USA Venture Capital (VC) firms are limiting investments in China due to political pressures, like the GGV Capital is diverting investments into North America, Latin America, Israel, Europe, India, and cross-border deals from Silicon Valley and New York²⁴. As a result, in India, cross-border activities have surged in IT, pharmaceuticals, healthcare, automotive, industrial and consumer goods sector to expand footprints and circumvent trade barriers.

Challenges:

• India lacks equitable infrastructure, skilled labour, regulatory policies and depends on Chinese goods heavily, which hinders its ability to compete with China²⁵, whose established supply chains, skilled workforce, and economies of scale enable lower production costs and higher efficiency.
• The Trade war has driven up the costs of raw materials and components for Indian manufacturers and will cause China to dump cheap products in India, as per Global Trade Research Initiative (GTRI)²⁶, leading to higher production costs and diminished global competitiveness.
• In Mergers and Acquisitions (M&As), deal closing time for approval is 30% high since 2018 due to increased regulatory scrutiny²⁷. Competition Commission of India (CCI) aims to reduce it from an average 210 days to 150 days.
• Local manufacturers and startups will face increased competition due to foreign players entering the Indian markets, requiring regulation by CCI and other authorities. There exists abuse of dominant position in Indian markets as seen in Google Search Bias case²⁸.
• EoDB remains an obstacle due to stringent compliances, bureaucratic hurdles, lack of due process of law and traditional dispute resolution mechanisms. India's higher taxes on capital gains and income earned in India, causes private equity and FDI investors to opt for alternate investment avenues or divert to other countries²⁹.
• Many countries including USA³⁰, have raised concerns over India's enforcement of Intellectual Property Rights (IPRs), counterfeit medicines, trademark violations and opposition, online piracy and non-implementation of World Intellectual Property Organisation internet treaties.
• Rupee has hit its lowest in February 2025 to INR 87 per USD, due to imbalance in global financial markets after the USA's tariffs have been imposed, that will cause inflation and costlier imports.
• As per GTRI report³¹, an additional 4.9% tariff due to reciprocal tariffs by USA will impact Indian exports in agriculture, pharmaceuticals, electronics, diamonds & jewellery, etc. and recommends a zero-for-zero tariff strategy for India with USA.

Legal and Policy Implications for India

The Trade war has resulted in altered international trade regulations, tariffs, and supply chains, which in turn is prompting changes in India's trade policies and legal frameworks. Considering its effect on businesses, investors, startups, etc. major changes are classified as under:

1. Trade Agreements: India has pursued several trade agreements³² and attracted businesses diversifying supply chains from China. India has trade agreements with several southeastern countries and with Japan Comprehensive Economic Partnership Agreement, signed in 2011. To boost trade, new partnerships have been signed, namely the United Arab Emirates Comprehensive Economic Partnership, Australia Economic Cooperation and Trade Agreement, India-UK Free Trade Agreement (FTA) (ongoing), etc. It recently signed India-European Union FTA on March 10, 2024. However, India opted out of the Regional Comprehensive Economic Partnership³³ signed in 2022³⁴, citing trade imbalances with China. State governments have entered into infrastructure, startup and innovation collaborations with countries like Japan to boost India's domestic manufacturing.
2. Foreign Direct Investment (FDI): The Indian government has introduced policies to boost FDI, simplify procedures and create a favourable investment climate for investors in manufacturing sector. Key regulatory changes that have facilitated inbound investments include liberalizing FDI regulations up to 100% though automatic route in Non-Banking Financial Companies, agriculture & animal husbandry, plantation, mining, single-band retail, defence, petroleum & natural gas, civil aviation, infrastructure, industrial parks, telecom and trading sectors, extending it to space sector in 2024³⁵ and to insurance sector in 2025³⁶, implementing the Goods and Services Tax (GST) for better transparency, online tax dispute mechanisms and incentivising Special Economic Zones, etc.
3. Tariffs on Imports: Indian government has continually raised tariff and non-tariff barriers to protect domestic suppliers and promote indigenous production. In the FY2021-22 Annual budget tariffs were increased on 31 product categories, including cotton and solar equipment. In FY2022-23 budget, tariffs on imported headphones, loudspeakers, and smart meters were also raised. The FY2023-24 budget increased tariffs on private jets, helicopters, plastic goods, jewellery, high gloss paper, and vitamins³⁷. India has also imposed non-trade barriers³⁸ banning import of more than 100 defence products, animals and food products prohibited under the Indian Customs Act, 1962, Food Adulteration Act, 1954, Food Safety and Standards Authority Act, 2006, Environment Protection Act, 1986, Wildlife Protection Act, 1972, Arms Act, 1959, etc³⁹.
4. Reforms in Trade and Manufacturing Policies: To promote entrepreneurship, innovation and MSMEs through EoDB, in FY 2024-25, efforts to streamline Goods and Service Tax implementation in filings, exemptions, tax reductions for corporates, firms and individuals, reducing compliances and liberalizing FDI were undertaken. Numerous Custom duty exemptions were also introduced in the 2025 Budget⁴⁰, including 36 lifesaving drugs⁴¹, to boost domestic manufacturing and Atmanirbhar Bharat policies⁴² undertaken by the Department for Promotion of Industry and Internal Trade (DPIIT)⁴³, with efforts to reduce India's dependence on China, which comprises of exports of USD 15.3 billion against imports of USD 98.5 billion in FY 2022-23.
5. Levying Anti-Dumping Duties (ADDs) and Safeguard Measures: Due to heavy tariffs imposed on Chinese goods by USA, China has been dumping goods in other countries, which has increased the trade deficit between India and China to USD 85 billion. Consequently, to protect India's domestic industries, ADDs have been imposed on various Chinese products by Director general of Trade Remedies (DGTR) ⁴⁴ on more than 155 products since 2001 and more than 30 products since 2018, which include aluminium products, hydrofluorocarbon blends, sulphur black, isopropyl alcohol, décor paper, etc. which have led to reduced sectoral imports from China.
6. Improved Export Regulations: Indian exports are rising slowly, mainly due to infrastructure and trade barriers. To address procedural issues, the Foreign Trade Policy amendment proposals in 2024, have amended the Foreign Trade Policy 2023 (effective from April 2023 to March 2028) to streamline Indian Trade Classification (Harmonised System) - ITC (HS) codes with international trade classifications of products. Further proposals include setting up of export towns, e-commerce hubs, district-based exports, export control, automation etc. to provide more connectivity to regions.
7. Redressing Competition and Antitrust Issues: M&As will remain a strategy for countries to expand into India's vast consumer market and to circumvent tariff barriers. Competition and Antitrust laws protect domestic industries and hostile takeovers. The Competition Act, 2002⁴⁵, primarily prohibits any agreements between companies, individuals or associations which adversely effect competition and free market practices. To promote EoDB in M&As, the recent Competition (Amendment) Act, 2023⁴⁶, and related rules⁴⁷, have together introduced regulatory scrutiny and mandatory CCI approval from September 10, 2024 in high value deals i.e. above INR 2,000 crores as Deal Value Threshold, including de minimus exemption cases. Also, to streamline merger control regime and EoDB, it has exempted pre-notifications in minority acquisitions, speedier merger reviews, allowing derogation application for acquirer to benefit from market opportunities, broadening definition of affiliate, etc.
8. Emphasis on Intellectual Property Rights (IPRs): Indian IPR laws are being amended to provide protection to businesses and individuals. To protect the IPRs of Indian as well foreign parties, India has strengthened its legal protections to align with international standards and attract foreign businesses. Decriminalisation of IPR laws⁴⁸ vide Jan Vishwas (Amendment of Provisions) Act, 2023⁴⁹ and passing of Patent (Amendment) Rules, 2024, shows Government's commitment to enforce IPR protection and promote innovation in the country⁵⁰.
9. Dispute Resolution Mechanisms: India's litigation landscape is undergoing changes to align with International best practices like Institutional Arbitration and Mediation in international trade dispute resolution, to promote EoDB practices, sustainable investments and trade, and thus are being implemented through fast-paced infrastructure and policy changes. The Supreme Court (SC) of India has shown commitment to remove procedural hurdles to promote Arbitration in India. In N.N. Global Mercantile case⁵¹, a seven-judge bench held that arbitration clause in unstamped arbitration agreement is enforceable. In Larsen Air Conditioning case⁵², SC limited the Court's interference in modifying the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. Further, to promote faster and non-formal resolutions, the Mediation Act, 2023 passed recently can be a win-win for all parties to resolve business disputes arising due to varied practices and customary laws.

Recommendations

• The BTA between India and USA must also uphold World Trade Organisation's (WTO) laws as under the WTO's Most Favoured Nation principle⁵³ of treating other people equally, India has an obligation to not lower tariffs for one country without extending it to other members.
• To build a robust entrepreneurial ecosystem for MSMEs and startups, by providing training-skilling-consulting, reducing compliance burden, GST and tax burden, departmental scrutinies and notices, one-stop closure of business provisions etc., to lead entrepreneurs from startup to growth phase and allowing swift exit options to foster continued innovation.
• Regional and sustainable growth be ensured through sector specific policy interventions for Data Centres, Textiles, Electrical, Electronics, Clean Energy, Automotive, Pharmaceuticals, Food and Agriculture, etc.
• Need to address Competition and Antitrust issues for MSMEs and ensure fair competition practices like predatory pricing, discriminatory pricing, exclusive dealing, bid rigging, price fixing, etc. For instance, new age startups are facing challenges from tech giants, where Digital Competition Bill, 2024⁵⁴ aims to redress conduct by digital enterprises.
• Corporate dispute resolution must be enforced via Alternate Dispute Resolution⁵⁵ mechanisms, prohibiting court involvement and restricting court's intervention to only rare circumstances.
• Businesses must be aware of the legal and regulatory changes and collaborate with legal experts to ensure compliance and protect their investments adequately amidst frequently changing economic and legal landscape.

Footnotes

1. America First Trade Policy Memorandum 2025

2. https://www.whitehouse.gov/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-china

3. Tariffs imposed by Trump Administration on China, Canada, Mexico - Reuters

4. https://edition.cnn.com/2025/02/10/politics/tariffs-steel-aluminum-trump/index.html

5. China hits back with Tariffs on US goods after Trump imposes new levys

6. Timeline: Key dates in the U.S.-China trade war - Reuters

7. US-China Trade war - Opportunities for India

8. India-Sanctions on China – bans on mobile apps - Reuters

9. PM Modi's visit to USA with four weeks of President Trump's commencement of Second Term-Firstpost

10. Telangana-Micro Small and Medium Enterprises-Policy (MSME) 2024-English.pdf

11. 11. 12. Impact of US Tariffs on China – Economist Intelligence

13. https://www.nber.org/digest/202204/how-us-china-trade-war-affected-rest-world

14. India-China Trade War: Will India scoop up more investments at the expense of China (indiatimes.com)

15. India Exports By Country – UNCOMTRADE (tradingeconomics.com)

16. North American Free Trade Alliance comprises of USA, Canada and Mexico

17. https://www.statista.com/statistics/1034699/export-value-by-world-region-from-india/

18. https://www.ibef.org/industry/textiles

19. https://www.business-standard.com/industry/news/global-toy-majors-shifting-focus-from-china-to-india
Business World – Increase in Toys exports by India – 239% from 2015 to 2023

20. Fading fortunes – The slowdown of cross-border capital into China

21. Pib.gov.in/India's FDI Journey hits $1 Trillion

22. Impact of the US-China Trade War on the FDI's in India: Zooming into the effects of the FDI in India (uu.nl)

23. Foreign Direct Investment (FDI) in India, FDI Inflows | IBEF

24. US venture firms shifting investments from China to India

25. https://prsindia.org/policy/report-summaries/impact-of-chinese-goods-on-indian-industry

26. US-China trade war escalation may lead to dumping of goods in India: GTRI

27. India Briefing – Mergers and Acquisitions – Tax and Regulatory updates

28. https://www.scconline.com/blog/post/2019/11/18/the-odyssey-of-google-search-bias-under-the-indian-competition-law/

29. Countries leaving China not coming to India – US Ambassador to India

30. India Placed on US Priority Watch List for IPR Enforcement

31. Global Trade Research Initiative (GTRI) Report – Reciprocal Tariffs and India

32. India has signed 13 Regional Trade Agreements (RTAs)/Free Trade Agreements (FTAs) - (pib.gov.in)

33. https://www.orfonline.org/expert-speak/india-reluctance-joining-rcep-boon-bane-long-run

34. Regional Comprehensive Economic Partnership (RCEP) agreement - 1 January 2022 - ASEAN

35. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2007876

36. Insurance section FDI to increase to 100% - The Hindu

37. https://www.trade.gov/country-commercial-guides/india-import-tariffs

38. https://www.indiafilings.com/learn/trade-barriers-in-india/

39. Import and Export Restrictions and Prohibitions in India, 2023

40. https://www.india-briefing.com/news/india-revises-customs-tariff-under-union-budget-2025-26-36054.html/

41. https://www.india-briefing.com/news/india-revises-customs-tariff-under-union-budget-2025-26-36054.html/

42. https://www.pmindia.gov.in/en/major_initiatives/make-in-india/

43. https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1882145

44. https://pib.gov.in/Pressreleaseshare.aspx?PRID=1809737

45. The Competition Act, 2002

46. The Competition (Amendment) Act, 2023

47. Competition (Criteria for Exemption of Combinations) Rules, 2024 (exemption rules); the Competition (Minimum Value of Assets or Turnover) Rules, 2024; and the Competition (Criteria for Combination) Rules, 2024 (combination criteria rules); CCI (combinations Regulations), 2024

48. Patents Act, 1970, Trade Marks Act, 1999, Copyrights Act, 1957, Geographical Indication of Goods Act, 1999

49. IP-Statutory-Updates-2023.pdf (lexorbis.com)

50. SCCOnline- IP laws decriminalised and amended – Jan Vishwas Act, 2023

51. N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. (2023 SCC OnLine SC 495)

52. Larsen Air Conditioning & Refrigeration Co. v. Union of India (2023 SCC OnLine SC 982)

53. https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

54. https://prsindia.org/policy/report-summaries/digital-competition-law

55. Arbitration, Mediation, Conciliation, Negotiation, etc.

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