India-China Trade Normalization: Strategic Opportunities in Semiconductors, EVs, and Rare Earths Amid U.S. Tariff Pressures

The U.S.-China trade war, reignited under Trump-era tariffs, has created a seismic shift in global supply chains. As Western companies scramble to diversify away from China, India has emerged as a strategic alternative. Yet, beneath the surface of this “de-risking” narrative lies a paradox: India's own industrial ambitions are increasingly dependent on China for critical inputs. This tension—between geopolitical alignment with the U.S. and economic pragmatism with China—is unlocking underappreciated investment opportunities in semiconductors, EV components, and rare earths.

Semiconductors: A New Manufacturing Hub with Chinese Inputs

India's semiconductor push is no longer aspirational. The India Semiconductor Mission (ISM), backed by $9.2 billion in funding, has attracted major players like Tata Group, Micron, and Renesas. A standout example is the Tata-Powerchip Semiconductor joint venture, which plans a $10.96 billion fabrication plant in Gujarat. This facility, expected to produce 50,000 wafers monthly, is a cornerstone of India's bid to become a global chipmaker.

However, India's semiconductor ecosystem still relies on Chinese equipment and materials. While the Production-Linked Incentive (PLI) program aims to localize production, Chinese firms like SMIC and TSMC remain key suppliers of advanced manufacturing tools. This creates a unique dynamic: India is building a self-reliant semiconductor industry while quietly integrating Chinese inputs. For investors, this duality points to opportunities in Indian chip design firms (e.g., VLSI, Si2C) and equipment suppliers (e.g., CG Power, which partners with Renesas) that bridge the gap between local manufacturing and global supply chains.

EV Components: Navigating Rare Earth Shortages with African Partnerships

India's EV industry is at a crossroads. With 30% of passenger car sales targeted to be electric by 2030, automakers like Tata Motors and Mahindra are racing to secure EV battery and magnet supplies. Yet, China's 2025 rare earth export restrictions—targeting materials like neodymium and dysprosium—have caused production bottlenecks. Maruti Suzuki's e-Vitara EV and Bajaj Auto's electric scooters face delays due to magnet shortages.

To counter this, India is pivoting to African partnerships. The Ministry of Atomic Energy has inked deals with mineral-rich nations like Namibia and South Africa for rare earth exploration and offtake agreements. These partnerships, coupled with India's fifth-largest rare earth reserves (6.9 million metric tons), aim to reduce dependency on China. While domestic processing remains nascent, companies like Indian Rare Earths Limited (IREL) are building magnet plants in Visakhapatnam.

Rare Earths: A Delicate Balancing Act with China

China's dominance in rare earth processing (85% of global refining capacity) gives it leverage in India's supply chain. During the 24th India-China border talks in August 2025, Chinese Foreign Minister Wang Yi assured India of expedited rare earth exports. Yet, customs data shows a 58% decline in magnet shipments to India since January 2025, highlighting the fragility of these assurances.

India's response is twofold: domestic development and geopolitical diversification. The government has halted rare earth exports to prioritize domestic needs, while IREL explores technology transfers with Japan and South Korea. Meanwhile, India's inclusion in the U.S.-led Mineral Security Partnership and its Africa-focused ICAREF forum signal a long-term strategy to hedge against Chinese volatility.

Investment Implications: Where to Play the India-China Rapprochement

The India-China trade normalization is not a full-throated alliance but a pragmatic recalibration. For investors, this creates asymmetric opportunities:
1. Semiconductor Equipment and Services: Firms like CG Power and Tata Electronics, which partner with global chipmakers, are positioned to benefit from India's PLI-driven growth.
2. EV Supply Chain Diversifiers: African-focused mineral explorers and Indian battery recyclers (e.g., Exide Industries) could capitalize on the shift away from China.
3. Rare Earth Processors: IREL and private players developing magnet production capabilities may see valuation uplift as India's self-reliance agenda gains traction.

The risks are clear—geopolitical tensions could flare, and China's export policies remain opaque. But for investors with a 3–5 year horizon, the India-China dynamic offers a compelling mix of strategic necessity and economic pragmatism. As U.S. tariffs force companies to rethink supply chains, India's ability to balance its relationships with both Washington and Beijing could become its most valuable asset.

In conclusion, the normalization of India-China trade is not a zero-sum game. It's a recalibration of power in a multipolar world, with India leveraging its strategic location and policy incentives to become a linchpin in global manufacturing. For those willing to navigate the geopolitical chessboard, the rewards in semiconductors, EVs, and rare earths are substantial—and underappreciated.