India trade
India tradeReuters

Ever since his victory in the United States presidential elections, Donald Trump has been more than vocal about China's trade policies and how the President-elect may even consider scrapping the 'One China' policy.

Donald Trump says he will tax US corporations exorbitantly if they lay off and outsource work

Now, Indian trade body Assocham has warned that escalating trade war between the world's two largest economies could have reverberations on India as well.

"India should not sit and watch the trade war among the big economies, mainly the US and China from the sidelines. We must take pro-active steps to ensure that we remain on the right side of the upcoming US administration, or else the impact could be on the Indian services exports to the American firms," an Assocham paper said.

Recently, Trump openly warned the US automakers and others who manufacture vehicles in Mexico and then sell those in the US to bring those manufacturing jobs back to the country or face excessive taxes.

Following the warning, Ford Motor Co last week scrapped a planned $1.6 billion car plant in San Luis Potosi in central Mexico. Trump also threatened to slap a "border tax" on Japanese automaker Toyota Motor Corp for its made-in-Mexico cars to be sold in the US.

"In an escalating trade war triggered by the US President-elect Donald Trump with Mexico and China, India may find itself in the crossfire with collateral damage to its economy, particularly to sectors such as information technology and select goods exports to the American market," Assocham said.

Assocham also suggested that India must build bridges with the upcoming US administration and assuage the concerns about job losses.

Trump's morning tweets have shocked those presuming that he threatening to impose higher taxes on US companies who outsource jobs during his election campaign was just a rhetoric.

Now that the US President-elect shows he means business, the collateral damage may be felt in India as well.

However, according to the Assocham paper, the threat to India is not from the US, but also from China. "With its economy being aggressively export driven, particularly in manufacturing, China would look for alternative export destinations outside the US in Europe and Asia. In the coming months, after the inauguration of Trump to the White House, China would double up dumping of its goods to countries like India as it gets entangled with the US over trade barriers," it said.