An Emperical Study on the Impact of Global Trade Wars on Trade Balance and Economic Growth in India

Abstract

This paper analyses the dual impact of global trade wars on the developing economies, whose primary objective is to understand the structural and macroeconomic implications for India. As the global trade serves as an essential tool for economic development and industrial growth, rising protectionism, by giving examples of the 2018 US-China trade disputes, the longstanding US-Canada dispute, international dumping practices, and a comparative study of India\'s global position during unstable global supply chains. By utilising a comprehensive review of the recent literature and macroeconomic data from 2015 to 2026, this study analyses how the international trade conflicts disrupt India’s trade balance. The findings reveal a mixed economic outcome. While certain sectors like medical, textiles and engineering experienced a short-term growth due to trade diversions and China Plus One Strategy, these gains significantly neutralised the trade deficit structures and balanced the export-import sectors. The deficit was heavily influenced by the domestic dependency on imports such as crude oil, electronics and machinery, along with internal hurdles including poor infrastructure and low research and development. This paper concludes that the external trade shocks cannot be eradicated by reciprocal tariffs, but with the long-term stability and rupee, which requires a structured domestic focus on policy frameworks like production-linked incentives PLI schemes and the Making India initiative to boost self-dependency and diversify the market relations by transforming India from a viewer or participant to a flexible manufacturing in the global economy.

Introduction

The text discusses the concept and impact of global trade wars, focusing particularly on their effects on India and the uncertainty they create for developing economies. It explains that trade wars—caused by tariffs, political tensions, and economic rivalry—disrupt global supply chains, increase prices of essential goods, and make international business unstable. While India may sometimes benefit from trade diversion effects (such as gaining export opportunities during conflicts like the US–China trade war), these gains are uncertain and may not last in the long term.

The study highlights that India’s economy is highly dependent on global trade, especially imports of oil and technology, making it vulnerable to price fluctuations during global conflicts. It raises concern that current growth in Indian exports and manufacturing may be temporary rather than structural, particularly under the “China Plus One” strategy.

The literature review shows mixed findings: some studies suggest India benefits from trade diversion and export opportunities, while others argue that overall gains are limited or unstable. Historical and theoretical works also show that trade conflicts often stem from protectionism and power struggles, and they usually harm global welfare in the long run.

The research identifies a key gap in existing studies: most focus on macroeconomic indicators like GDP, exports, and global supply chains, while ignoring the ground-level reality of MSMEs, which form the backbone of India’s economy. It raises concerns about whether MSMEs are truly becoming stronger or only surviving due to temporary global shifts.

The study aims to answer whether India’s current trade gains are sustainable or temporary, how MSMEs are coping with global disruptions, and whether policies like the Production-Linked Incentive (PLI) scheme are effective. It tests two hypotheses: whether India’s trade shift is temporary (H0) or a permanent economic boost (H1).

Methodologically, the research uses a mixed quantitative approach, combining secondary data (2015–2025 macroeconomic indicators) with primary survey data. It applies statistical tools like Difference-in-Differences and regression analysis to evaluate trade impacts over time.

Conclusion

This scheme has successfully provided incentives to the large-scale investments in sectors like electronics and medicines, but its long-term efficiency depends on transforming it from assembly-based manufacturing to value-added manufacturing, which will eventually create a greater integration for the global value chains. In conclusion, the global trade restructure provides an efficient opportunity for India, but we cannot state it as a self-executing advantage. To secure a sustained and competitive environment, India must move beyond the reactive trade policy and focus on spending, strengthening the domestic sectors and creating manageable manufacturing ecosystems. They should monitor whether the current efficiency of PLI-driven investments transforms into a consistent and long-term shift in the global market platform or if additional structures are required to overcome the constant uncertainties for the establishment of trade networks that are currently centred on China.

References

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Copyright

Copyright © 2026 Akancha Bhagat , Dr. Narendra Singh , D. Ajay Kumar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.