Strengthening regional salience: Global tariff regimes on India’s auto sector, electronics, and emerging AI ecosystem
US tariffs reshape India-China trade, highlighting opportunities in automotive, electronics, AI, and strategic regional collaboration.
When President Donald Trump first spoke of reciprocal tariffs (April 07, 2025), not many could have imagined how the post-tariff world would shape up, though the early indicators were clear: the S&P 500 had plummeted US$ 6.57 T in four days (the worst since 1950), global stocks lost US$ 10T and the US Treasury took a hit of 4.8 per cent.
For the Oval office, it was business as usual with populist theatrics as a “deal negotiator” and, with MAGA at the show window, it seemed to justify to the majority of the American people. However, the reality was different; the halo of invincibility had long begun to fade. As per the ABC news survey (August 27, 2025), Trump has the lowest approval rating in 80 years; 72 per cent feel that his policies increase the likelihood of recession and yet, he is ahead of the Democrats.
Geopolitical pressures and strategic responses
Notwithstanding, the gripping impact of the US Tariffs has clearly set the direction for a new international order, albeit for now, with tariffs hitting hard on India, the EU and, cautiously, China and Russia. As of the date of this article (August 31, 2025), India stands as one of the most heavily tariffed countries by the US after Brazil, while China, after an initial 145% tariff imposition later rolled back, now faces a 30% tariff. Simultaneously, both India and China are under geopolitical pressure and scrutiny over their role and support to Russia in the ongoing Russia-Ukraine war. The current situation demands strategic re-engagement between India China nations to achieve a common path for growth. India has been targeted for buying Russian oil, while China has been asked to stop supplying Russia dual-use goods capable of being used in the conflict (UN Security Council, July 25, 2025).
A countervailing response calls for a strategic engagement to balance the political and economic order through cooperation, engagement and collaboration between China and India, albeit a cautious one. While both countries, over the years, have had a blow-hot, blow-cold relationship, the Galwan standoff in 2020 thawed the relationship. It is time to realign engagement, taking advantage of each other’s inherent strengths.
Demographic and economic advantages
Together, India China holds sway over the consumer markets with ~36 per cent of the global population in terms of demography, economy of scale and growth. Both countries are pegged to grow between 5 to 7 per cent and the consumer class is young, with a median age of 39 years. India’s young population median age is 30, while China is above 45 years but together, they will add an expected half a billion new consumers by 2030 which is 55 per cent of the global total (World Data Lab, 2025). Both countries remain ahead of the global growth of 2.7 per cent with India’s demographic dividend being key; the World Bank forecasts 6.7 per cent growth for India for both FY26 and FY27, and China will slow down to 4.5 per cent in 2025 (World Bank, GEP, 2025).
Another key advantage of collaboration is the strategic policy of each of the countries. Global China 2049 envisions national rejuvenation through the “Chinese Dream”; India aims to become a developed country and a US$ 30 Tn economy.
Sectoral priorities: manufacturing, AI and automotive
Two sectors, amongst others, will be the key to each of the countries’ visions, namely manufacturing and artificial intelligence. While India has identified Electronics (semiconductors, mobile phones), automotive (EVs, batteries), pharmaceuticals and textiles, China’s focus is on robotics, AI-integrated factories, green manufacturing, and next-gen materials with a dual circulation strategy to reduce dependence on foreign markets while exporting high-value products. However, for China, the current geopolitical backlash (U.S.–China tech war), demographic headwinds of the aging workforce, rising labour costs and overcapacity in some sectors like solar and EVs will create friction (e.g., solar, EVs). For India, similarly, infrastructure, a skilled workforce and export competitiveness will be critical.
Notwithstanding, China remains the global manufacturing powerhouse, accounting for more than 27 per cent of the world output and India, at 3 per cent but with the advantage of an agile and young population and competitive cost, is projected to grow to 21 per cent by 2030. However, both countries can augment together to create world dominance in scale economy and export.
For India, relaxation of FDI rules with exceptions on matters of strategy and national security, easing relaxations on Chinese investment in identified sectors to revive capital flows and strengthen global supply chains. For China it is opportune to extend its China plus initiative, leverage competitive cost structures and utilise India’s deep labour pools. Electronics automobile manufacturing will significantly add value for both countries.
Similarly, India’s automotive sector is of strategic advantage for China, with the latter being the world’s largest. While India is the 4th largest automobile producer, it has a competitive advantage in labour costs and strong domestic brands and is working towards reducing import dependency. Both countries can help each other in scaling up EV technology, opening markets and augmenting China’s plus strategy.
Artificial intelligence as a game changer
The Emerging AI Ecosystem is the biggest game changer in the next few years. India and China are both part of global AI discussions at forums like the UN, G20, and BRICS with different strategic alignments. China aims for Global AI Leadership by 2030 by focusing on rapid development and military applications with huge investments and tech giants like Baidu, Tencent, Alibaba, and Huawei. India, on the other hand, prioritises AI for all leveraging in public sectors like healthcare, education, infrastructure and transport to offset the institutional challenges. But both have opportunities for engagement and can offset import dependency.
AI at the same time will compete and conflict with the anthropocentric realities in terms of water consumption and energy usage. Here, joint R&D efforts could prove beneficial. China is yet to make a mark in the chip industry and relies (partially) on NVidia but China DeepSeek’s R1 global markets have high performance at drastically reduced costs, even with suboptimal hardware, which disrupted Nvidia’s cost-effective innovation. It is positioned to be the global leader. India, although at its nascent stage, holds immense promise in the AI startup sector.
India AI has approved an investment of US$ 1.23 billion (Rs 10,372 crore) aimed at boosting compute infrastructure, research, and ecosystem development with high penetration of AI skills. However, what sets them apart is the ideological approach wherein China prioritises a strong innovative space with relatively less emphasis on regulatory frameworks, while India is poised the other way.
Cautionary and strategic engagement
While cooperative engagement between the two countries has many opportunities, this will be a cautionary approach, and the fine print will matter. Both countries should also engage in other areas of engagement, from resolving border disputes and Galwan-like crises to, most importantly, balancing regional power structures to their relative advantage. Rather than a US pushback and out of necessity, the engagement should be motivated by interests and engagement.
A guarded step forward
The Prime Minister’s visit to China is a beginning of a promising but guarded approach when he reiterated India’s commitment to take bilateral ties forward based on mutual trust, respect and sensitivity, with peace and stability maintained along the border following disengagement.
– Dr. Mukul Saxena, Professor and Director, Centre for Postgraduate and Legal Studies, and Centre of Excellence in Public Policy, Alliance School of Law.