The Spillover Effect of <scp>US‐China</scp> Tension on India's Medium‐High‐Tech Manufacturing Exports: Exploring the Role of Export Market Diversification

ABSTRACT Rising US‐China tensions can significantly reshape the worldwide trade dynamics by disrupting established supply chains. Addressing this, this study explores the impact of US‐China tension on India's medium‐high‐tech manufacturing exports by obtaining time series data from India spanning 1997 to 2022. This study also examines the behavior of export market diversification on medium‐high‐tech manufacturing exports, in the presence of US‐China tension. To measure these relationships, the Dynamic Autoregressive Distributed Lag (DARDL) method is employed. The findings reveal that the US‐China tension exerts a positive impact on India's MHM exports, while export market diversification deteriorates it. Interestingly, this study discovers that export market diversification exerts a beneficial impact on India's medium‐high‐tech manufacturing exports in presence of the US‐China tension. Additionally, this study shows a beneficial role of domestic bank credit, economic growth, total export demand, government effectiveness, and currency depreciation on India's medium‐high‐tech manufacturing exports. These findings are consistent with the results from Fully Modified Ordinary Least Squares (FMOLS). The marginal plot and heatmap analysis provide robustness of the interaction effect. Results from the CUSUM and the CUSUM Square confirm the estimated model stability. These findings offer policy recommendations for Indian policymakers to maximize the MHM exports.