Executive Summary
- India and China are discussing a reset in their complex relationship, primarily driven by shared economic pressures stemming from US tariffs imposed by President Trump.
- Despite a history of mistrust and border disputes, both nations are exploring avenues for economic cooperation and shifting geopolitical alignments, influenced by India’s perceived disillusionment with the United States.
- Potential economic cooperation includes India seeking lower import duties on Chinese manufacturing inputs and China gaining better market access to India’s large consumer base, aiming to reduce dependence on the United States.
The Story So Far
- India and China are engaging in discussions primarily due to the shared economic pressures from President Trump’s tariffs, which are significantly impacting both nations’ economies. This renewed dialogue occurs despite a history of deep mistrust and recent border disputes, as India also strategically re-evaluates its geopolitical alignments amidst perceived disillusionment with the United States.
Why This Matters
- The economic pressures exerted by President Trump’s tariffs are compelling India and China to re-evaluate their relationship, potentially fostering greater economic cooperation and shifting geopolitical alignments as both nations seek to reduce reliance on the United States. This renewed dialogue, despite historical tensions, could lead to practical “soft wins” like eased trade restrictions and resumed flights, ultimately aiming to diversify global supply chains and reshape international trade flows.
Who Thinks What?
- India’s Prime Minister Narendra Modi is seeking to reset relations with China, driven by new US tariffs and a perceived disillusionment with the United States, to explore economic cooperation despite historical tensions.
- China’s President Xi Jinping is motivated to engage with India due to the impact of President Trump’s tariffs on its economy, valuing the optics of Global South solidarity and potential market access in India.
- Analysts suggest that the shared economic pressures from President Trump’s trade policies are compelling both India and China to explore dialogue and collaboration, aiming to reduce dependence on the United States and reshape global trade.
India’s Prime Minister Narendra Modi and China’s President Xi Jinping are set to engage in discussions aimed at resetting their nations’ complex relationship, driven by shared economic pressures stemming from US tariffs. The meeting, which coincides with Modi’s attendance at the Shanghai Cooperation Organisation (SCO) summit in China, comes as both economic powerhouses grapple with the impact of President Trump’s trade policies.
Impact of US Tariffs
The impetus for renewed dialogue follows the recent imposition of 50% tariffs on various Indian goods, including diamonds and shrimp, entering the United States. President Trump indicated these tariffs were a response to India’s continued purchase of Russian oil, a move that experts suggest could significantly impact India’s vibrant export sector and its ambitious growth projections.
Similarly, China’s economy is experiencing a slowdown, with high US tariffs posing a substantial threat to its economic recovery plans. Both nations find themselves in a position where external economic pressures are prompting a re-evaluation of their bilateral ties.
Navigating Historical Tensions
The relationship between India and China has historically been fraught with mistrust, primarily due to long-standing border disputes. A notable escalation occurred in June 2020, with violence in Ladakh’s Galwan Valley marking the most severe hostility between the two countries in over four decades.
The fallout from these tensions has had significant economic repercussions. Direct flights were suspended, visas and Chinese investments faced restrictions, leading to delays in infrastructure projects, and India banned over 200 Chinese applications, including TikTok. Beyond border issues, other points of contention include Tibet, the Dalai Lama, and disputes over shared water resources, alongside broader regional rivalries.
Antoine Levesques, senior fellow for South and Central Asian defence, strategy and diplomacy at IISS, emphasizes the necessity of dialogue to manage expectations from other global powers who view India-China relations as crucial for Asia’s stability.
Shifting Geopolitical Alignments
India’s current diplomatic stance reflects a notable shift, with experts describing its alliance with China as “uncomfortable.” Priyanka Kishore, founder and principal economist at Asia Decoded, notes that India’s perceived disillusionment with the United States’ position has encouraged its participation in a multipolar global narrative, a view shared by China.
Modi’s attendance at the SCO summit, a regional body that includes China, Iran, Pakistan, and Russia, underscores this shift. While India has historically downplayed the organization’s significance, a downturn in its relations with Washington has reportedly led Delhi to reconsider the SCO’s utility. China, for its part, values the optics of Global South solidarity amid the trade tensions initiated by President Trump.
The BRICS grouping, which also counts China and India among its members, has similarly drawn criticism from President Trump, who has threatened additional tariffs. Chietigj Bajpaee and Yu Jie of Chatham House suggest that by leveraging their respective strengths—China’s manufacturing, India’s service sector, and Russia’s natural resources—these nations could reduce dependence on the United States, diversify export markets, and reshape global trade flows.
Potential for Economic Cooperation
Despite the complex history, there is a strong case for economic partnership. India remains reliant on China for manufacturing inputs, including raw materials and components, and may seek lower import duties on these goods. Experts point out that India’s stringent industrial policies have previously hindered its full participation in the global supply chain shifts away from China.
Priyanka Kishore highlights opportunities for India to expand its electronics manufacturing, citing Apple’s production of iPhones in India without overlapping with its operations in Vietnam. For China, improved market access in India, with its 1.45 billion consumers, would be highly beneficial, especially given a shrinking US market and bans on Chinese apps like Shein and TikTok in India.
Potential “soft wins” from the meeting could include the resumption of direct flights, further relaxations on visas, and other economic agreements. Qian Liu, founder and chief executive of Wusawa Advisory, advocates for a greater focus on how the world’s second and third-largest economies, China and India, can collaborate.
While a single meeting is unlikely to resolve the deeply entrenched complexities of the India-China relationship, Prime Minister Modi’s visit signals India’s strategic flexibility and its exploration of alternatives amidst global economic pressures. Driven by the shared impact of US tariffs, both nations appear poised to explore avenues for economic collaboration, though the path to significantly improved ties remains long and challenging.
