$100 billion Trade Deficit is Shocking!!
India’s Trade Equation with USA and China: A Tale of Surplus and Deficit
Recently, a mix of good and bad news has emerged regarding India’s trade relations—particularly with the USA and China. It’s crucial that you understand both developments, as they significantly impact our economy and future policy decisions.
Good News: Rising Trade Surplus with the USA
In the most recent financial year, India’s trade surplus with the United States has grown impressively. While in the previous year we exported $35 billion more to the USA than we imported, this year that number has risen to $41 billion.
This is excellent news for India. A growing trade surplus with powerful economies like the USA means our exports are competitive, our industries are producing more, and we’re earning valuable foreign exchange.
As inflation in the US rises and import tariffs on Chinese goods go up (in some cases as high as 245%), American buyers are actively looking for alternative suppliers. India is increasingly filling that void. If this trend continues, it wouldn’t be surprising if India’s trade surplus with the US crosses $50 billion in the near future.
The Bad News: Growing Trade Deficit with China
While our trade surplus with the US is rising, our trade deficit with China is ballooning. Last year, India’s trade deficit with China stood at $85 billion. Now, it is nearing $99 billion, and there are concerns that it may soon touch $120–130 billion—or even more.
Why is this happening?
China, facing high tariffs from the US, is aggressively dumping cheap goods into other markets—India being a prime target. With electronic items, chemicals, and raw materials like APIs produced at scale in China, these products are being sold at very low prices across Asia.
Many Indian traders and businesses see this as an opportunity: buy cheap from China, sell in India, and make a profit. But in the long run, this increases our dependency on China, erodes local manufacturing, and fuels a growing trade imbalance.
Why This is Dangerous for India
A massive trade deficit means we are sending billions of dollars to China. Even if this money doesn’t directly go to President Xi Jinping, the Chinese government earns significant tax revenue from exports, a portion of which inevitably supports China’s massive military budget.
This dynamic indirectly strengthens China’s geopolitical position—often in direct contrast to India’s national interests.
Government’s Concern and Response
In March 2025, India’s Commerce Minister gave a strong statement urging Indian industries to “replace Chinese goods with US imports.”
The goal is clear:
- Reduce dependence on China
- Lower the trade deficit
- Support strategic allies like the USA
India has already imposed a 30% tariff on Chinese and Vietnamese steel imports in 2024 to protect domestic industries like Tata Steel, SAIL, and Jindal. This move was essential because Chinese steel production is massive—far beyond any other country—and was undercutting Indian producers.
Should India Impose More Tariffs on Chinese Goods?
Now comes the big question:
Should India impose similar tariffs on other Chinese products, like electronics, appliances, and chemicals?
The answer isn’t simple.
- Pros:
- Protect Indian industries
- Reduce trade deficit
- Curb Chinese influence
- Boost Make in India initiatives
- Cons:
- Tariffs will increase prices for Indian consumers
- A budget smartphone that costs ₹12,000 today may go up to ₹16,000
- Middle-class families will be hit hardest
- Indian businesses relying on cheap imports could suffer
A blanket tariff on Chinese goods may not be immediately feasible. India needs a carefully calibrated policy that gradually reduces reliance on Chinese imports while supporting domestic alternatives through subsidies, infrastructure, and innovation.
A Call for National Discussion
This is not a decision that the government can take lightly. It affects every Indian—especially the average consumer and small business owner. As citizens, it’s important for us to:
- Stay informed
- Participate in policy debates
- Support local industries when possible