Strengthening Regional Salience: Global tariff regimes on India’s auto sector, electronics, and emerging AI ecosystem
A New Era of Tariffs and Trade Shifts
When President Donald Trump first spoke of reciprocal tariffs (April 07, 2025), not many could have imagined how the post-tariff world would unfold. Early indicators were already alarming: the S&P 500 had plunged by $6.57 trillion in just four days (the worst since 195), global stocks lost $10 trillion, and the US Treasury took a 4.8% hit. For the Oval Office, this was portrayed as business as usual, with populist theatrics and the image of a “deal negotiator.” MAGA seemed to justify it for many Americans. Yet the reality was different, the halo of invincibility had long begun to fade. According to an ABC News survey (August 27, 2025), Trump now holds the lowest approval rating in 80 years. While 72% of respondents felt his policies increased the likelihood of a recession, he still maintained an edge over Democrats.
India and China in the Crosshairs
The global impact of US tariffs has been far-reaching, clearly shaping the direction of a new international order. India, the EU, and to a measured extent, China and Russia, have felt the brunt of these trade actions. As of 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 scrutiny regarding their roles in the Russia-Ukraine conflict. India faces criticism for buying Russian oil, while China has been urged to stop supplying Russia with dual-use goods that could be leveraged in the war (UN Security Council, July 25, 2025).
Time for a Strategic Re-Engagement
This situation calls for a cautious but strategic re-engagement between India and China, two nations that have often shared a blow-hot, blow-cold relationship, especially after the Galwan standoff in 2020. The current moment offers an opportunity to realign their engagement by leveraging each other’s inherent strengths.
Demographic Powerhouses and Ambitious Visions
Together, India and China hold sway over ~36% of the global population, making them formidable forces in terms of demographics, economies of scale, and growth potential. Both countries are projected to drive global growth between 5–7%, with india’s young population being a key demographic dividend. India has a median age of 30, while China’s is above 45, yet together they are expected to add half a billion new consumers by 2030, 55% of the global total (World Data Lab, 2025). While global growth hovers at 2.7%, India is forecasted at 6.7% for FY26 and FY27, while China will slow to 4.5% in 2025 (World Bank, GEP, 2025).
National Visions: China 2049 and India 30 Trillion
Strategically, both nations have set ambitious visions. China’s “Global China 2049” aims at national rejuvenation through the “Chinese Dream,” while India seeks to transform into a developed nation with a $30 trillion economy. At the heart of these aspirations are two crucial sectors: manufacturing and artificial intelligence.
Manufacturing: A Foundation for Cross-Border Collaboration
The manufacturing sector presents a significant opportunity for
cross-border collaboration. India has prioritized sectors like electronics and automotive, while China is focusing on robotics and green manufacturing. While China leads in global manufacturing output,
India-China manufacturing can create an unprecedented scale economy by leveraging their complementary strengths.
For India, easing restrictions on Chinese investments could revive capital flows and strengthen
global supply chains. For China, a
China Plus One strategy that taps into India’s young workforce could add significant value to sectors like electronics and automotive. The
automotive sector is a great example of this synergy, where both countries could collaborate to scale EV technology and advance manufacturing partnerships.
The manufacturing sector presents a significant opportunity for cross-border collaboration. India has prioritized electronics (semiconductors, mobile phones), automotive (EVs, batteries), pharmaceuticals, and textiles. China, meanwhile, is focusing on robotics, AI-driven factories, green manufacturing, and next-generation materials, under its dual circulation strategy to reduce external dependencies while driving high-value exports. Yet both countries face challenges, China contends with an aging workforce, rising labor costs, and overcapacity in sectors like solar and EVs, while India needs to strengthen infrastructure, build a skilled workforce, and boost export competitiveness.
Despite these hurdles, China remains the world’s manufacturing powerhouse with 27% of global output, compared to India’s 3%. However, India has the advantage of a young and agile population, competitive costs, and projections to rise to 21% of global output by 2030. Together, they could create an unprecedented scale economy. For India, easing restrictions on Chinese investments in identified sectors, while safeguarding strategic interests, could revive capital flows and strengthen supply chains. For China, extending its “China Plus One” strategy and tapping into India’s labor pool could add significant value in electronics and automotive manufacturing.
Automotive: A Sector of Shared Opportunities
The automotive sector exemplifies this synergy. While China is the world’s largest automobile producer, India ranks 4th, offering competitive labor costs, strong domestic brands, and a drive to reduce import dependency. The automotive sector is a great example of this synergy, where both countries could collaborate to scale EV technology and advance manufacturing partnerships.
Artificial Intelligence: The Next Big Frontier
Artificial intelligence stands as the biggest game-changer in the coming decade. Both countries are active in global AI discussions at the UN, G20, and BRICS, though with different approaches. China is aiming for global AI leadership by 2030, with massive investments and support from tech giants like Baidu, Tencent, Alibaba, and Huawei. India, meanwhile, is prioritizing “AI for All,” with a focus on public-sector applications in healthcare, education, infrastructure, and transportation. Despite their differing priorities, both countries share opportunities to reduce import dependencies and drive innovation.
AI also raises shared challenges, such as balancing technological Innovation with environmental realities like water and energy use. Here, joint R&D efforts could prove beneficial. While China still relies partially on Nvidia in AI chipmaking, its homegrown DeepSeek R1 has disrupted markets with high-performance, cost-effective innovations. India, though at a nascent stage, is rapidly building an AI startup ecosystem. With India AI approving a $1.23 billion (~₹10,372 crore) budget for compute infrastructure and ecosystem development, the country is preparing for significant growth. The main difference lies in approach, China emphasizes rapid innovation with less regulatory oversight, while India leans toward a cautious, regulatory-driven path.
Cooperation With Caution
Still, cooperation must be pursued carefully. Border disputes, crises like Galwan, and the delicate balance of regional power structures cannot be ignored. Engagement should be driven by long-term interests rather than short-term US pushback.
A Guarded Step Forward
The Indian Prime Minister’s recent visit to China reflects this cautious optimism. By reiterating India’s commitment to advancing bilateral ties based on mutual trust, respect, and sensitivity, while ensuring peace and stability along the border, the visit marks a promising yet guarded step forward.
Dr. Mukul Saxena, Professor & Director- Centre for PG and Legal Studies and Centre of Excellence in Public Policy, Sustainability and ESG Research – Alliance School of Law