New Delhi, June 23, 2025 — As the US-China trade war intensifies, the ripple effects are being felt far beyond Washington and Beijing. For India, three key negative spillovers have emerged from the ongoing economic clash: collateral damage from export controls, alleged deliberate targeting of Indian industries, and the securitization of global trade, all of which now demand urgent attention from Indian policymakers and businesses alike.

1. Export Controls with Collateral Impact on India

In April 2025, the Chinese government imposed export restrictions on seven rare earth elements and their magnets, a retaliatory move against President Trump’s imposition of "Liberation Day tariffs". These rare earths are critical to manufacturing in the automotive and aviation sectors, particularly for electric and hybrid vehicles.

Though directed at the US, the licensing regime was applied globally, stalling shipments to multiple countries — India included. Beijing now requires all importing entities to certify non-military use and no re-export to the US, delaying supply chains.

Indian EV makers and two-wheeler giants report production slowdowns, delayed product launches, and license backlogs. A delay of even 45 days in approvals has ripple effects, with companies scrambling to secure alternate materials or stockpile existing inventory.

2. Discriminatory Targeting of Indian Firms

What’s increasingly troubling, however, is Beijing’s apparent discriminatory behavior. Despite endorsements from the Indian government, more than 30 applications from Indian automakers are reportedly pending Chinese approvals.

In contrast, approvals for American automakers like Ford, GM, and Stellantis have already been expedited following negotiations in London. The EU has been promised a Green Channel by China to fast-track rare earth shipments. Meanwhile, applications for Indian-bound shipments are being rejected, even when licenses for the same global firm’s subsidiaries in the US and Germany are granted.

This asymmetric treatment signals China’s use of trade as a strategic tool— not just to punish the US but also to constrain Indian industrial growth.

3. Rise of Trade Securitization

The third spillover — and perhaps the most alarming — is the securitization of trade itself. Global commerce is now increasingly influenced by geopolitical motives rather than market logic. This means that supply disruptions may happen regardless of India’s role in the conflict.

This marks a shift towards a world where supply chain trustworthiness and political alignment will often dictate access to critical resources. For a country like India — heavily dependent on Chinese raw materials, especially in tech and clean energy sectors — this is a strategic red flag.

India’s Response: What Needs to Be Done

To cope with these new realities, India must adopt a dual-track strategy: short-term diplomatic engagement and long-term industrial resilience.

Short-Term: Diplomacy and Political Engagement

• Indian government officials must escalate the matter diplomatically and demand equal treatment for Indian companies.

• Direct engagement with the Chinese Ministry of Commerce and involvement of multilateral trade bodies could help resolve licensing delays.

• New Delhi must signal that selective targeting of Indian businesses may hurt broader economic relations.

“It is a testament to frayed diplomatic channels that Indian firms had to approach the Chinese embassy directly for endorsements,” said a senior trade official. “This would not have been the case if a stronger strategic engagement was already in place.”

Medium to Long-Term: Resilience-Building

India must proactively de-risk its supply chains. The following steps are crucial:

1. Diversify Rare Earth Suppliers: Countries like Australia, Vietnam, and the US are expanding rare earth exports and could become partners.

2. Indigenize Production: Develop domestic capacity in refining and processing rare earths. India has untapped reserves, though underutilized due to environmental and cost concerns.

3. Stockpiling: Automotive and electronics manufacturers must increase inventory buffers. Current norms of 4–6 weeks are insufficient for strategic commodities.

4. Secure Trade Corridors: Build preferential trade agreements (PTAs) and mutual recognition protocols with reliable partners in Asia, Europe, and North America.

5. Innovation in Substitutes: Invest in R&D to identify rare earth alternatives, such as sodium-ion or graphene-based battery technologies.

Conclusion: Policy, Not Just Protest

The crisis triggered by the US-China trade war has made it clear that India cannot afford to be a passive observer in global geoeconomic disruptions. Whether it is rare earths, semiconductors, or EV batteries, the future of India’s growth hinges on its ability to anticipate and absorb external shocks.

Diplomacy must work hand-in-hand with industry. Without swift and strategic responses, India risks being not just a bystander, but a casualty in the new age of weaponized trade.

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