
Photo: RTE
India’s export dynamics showed a sharp realignment in December as shipments to China surged while exports to the United States declined, highlighting the growing impact of steep U.S. tariffs on New Delhi’s trade strategy. Government data released late Thursday shows India’s merchandise trade deficit widened 21.4% year on year in December to $25 billion, reflecting faster import growth and uneven export performance across key markets.
The shift underscores how Beijing is re-emerging as India’s most significant merchandise trading partner at a time when trade relations with Washington remain strained.
Between April and December 2025, India’s total goods trade with China reached $110.20 billion, surpassing $105.31 billion in trade with the United States, according to India’s commerce ministry. This marks a notable reversal, given that the U.S. has traditionally been India’s largest export destination and a key strategic partner.
In December alone, India’s exports to China surged 67% year on year to $2 billion. By contrast, shipments to the U.S. fell 1.8% to $6.8 billion, despite America remaining India’s single-largest export market by value.
During the first nine months of the fiscal year ending March 2026, exports to mainland China climbed nearly 37%, while shipments routed through Hong Kong increased by more than 25%, reinforcing the momentum toward East Asian markets.
The shift comes as the United States has imposed tariffs of up to 50% on Indian goods, among the highest levied on any trading partner and even exceeding those applied to China. These measures have disrupted established supply chains and dampened export growth to the U.S., forcing Indian exporters to seek alternative destinations.
While exports to the U.S. had jumped 22.6% in November amid hopes of a potential trade deal, that momentum faded in December as negotiations stalled and tariff uncertainty persisted.
Trade trends are also being influenced by improving diplomatic ties between India and China. Earlier this week, India’s Foreign Secretary Vikram Misri met Sun Haiyan, Vice Minister of the International Department of the Communist Party of China, in New Delhi. Both sides discussed progress in stabilizing and rebuilding bilateral relations, with a renewed focus on business engagement and people-to-people ties.
Relations have gradually warmed since Prime Minister Narendra Modi and Chinese President Xi Jinping met on the sidelines of the Shanghai Cooperation Organization summit in September, where both leaders signaled a preference for partnership over rivalry.
Despite rising exports, China remains a source of concern for Indian policymakers due to a rapidly expanding trade deficit. Between April and December, India recorded a trade surplus of more than $26 billion with the United States, while its trade deficit with China ballooned to $81.7 billion.
For the full fiscal year 2025, India traded $131.84 billion worth of goods with the U.S. and $127.71 billion with China, excluding Hong Kong. The contrast highlights a fundamental imbalance, with India exporting higher-value goods to the U.S. while importing large volumes of electronics, machinery, and industrial inputs from China.
India’s merchandise exports rose 1.9% year on year in December, while imports jumped 8.8%, driving the overall trade deficit to $25 billion. Although the figure was lower than market expectations of $27 billion, it still reflects pressure from higher energy imports, strong domestic demand, and slower export growth to Western markets.
The December outcome followed a surprise 19.4% rise in exports in November, which had raised hopes of a sustained recovery.
India’s trade secretary Rajesh Agrawal said this week that New Delhi was “very near” to finalizing a trade agreement with Washington, though he declined to provide a timeline. Negotiations have dragged on for months without a breakthrough.
Comments from U.S. Commerce Secretary Howard Lutnick added uncertainty after he suggested that talks collapsed due to a lack of direct engagement at the leadership level. Indian officials have pushed back, calling the remarks inaccurate, while newly appointed U.S. Ambassador to India Sergio Gor acknowledged the complexity of concluding a deal with an economy of India’s size but reiterated commitment to reaching an agreement.
With U.S. tariffs reshaping trade incentives, India is accelerating efforts to diversify its export markets. Officials say the country is close to finalizing a long-awaited trade agreement with the European Union, potentially as early as this month.
India has also entered trade pacts with the UK, Oman, and New Zealand, all expected to be signed in the first half of 2026. These agreements are aimed at reducing reliance on any single market and cushioning exporters from geopolitical and policy shocks.
Industry leaders argue that diversification is now essential. According to the Federation of Indian Export Organisations, India’s export footprint spans the UAE, China, the Netherlands, the UK, and Germany, alongside the U.S., providing a degree of resilience as global trade routes are reshaped by geopolitical tensions, sanctions, and supply chain realignments.
As tariffs, diplomacy, and global demand continue to evolve, India’s trade strategy is increasingly defined by flexibility, regional rebalancing, and a push to sustain export growth in an uncertain global environment.









