Recent developments show a thaw in India-China relations after years of tension, especially following the 2020 Galwan Valley clashes. The imposition of high tariffs by the US on Indian imports has pushed India to reconsider its stance towards China. This shift aims to counterbalance the adverse effects of US tariffs by exploring Chinese markets and signalling to the US a strategic realignment. However, deep-rooted trade imbalances and manufacturing challenges complicate this new phase of engagement.
Context of India-China Rapprochement
India and China have resumed talks after a period of hostility triggered by border clashes. Prime Minister Narendra Modi’s attendance at the Shanghai Cooperation Organisation summit and meeting with President Xi Jinping mark a diplomatic effort to ease tensions. India’s motivation includes sending a message to the US to reconsider punitive tariffs and seeking alternative export markets to offset losses in the US.
Trade Imbalance and Deficit Trends
India’s trade deficit with China has grown over two decades, driven by rising imports from China. Imports from China now form a large share of India’s total imports. Conversely, India’s exports to China have stagnated or declined. The deficit peaked in 2016-17, accounting for almost half of India’s total trade deficit, and remains at 35% in 2024-25.
Nature of Trade – Exports and Imports
India mainly exports minimally processed primary products to China, such as organic chemicals. In contrast, imports from China are dominated by machinery and electronic equipment. This reflects India’s limited manufacturing capabilities and dependence on Chinese technology and intermediate goods.
Manufacturing Sector Challenges
India’s manufacturing sector has not advanced sufficiently to compete with China’s technological progress. Domestic production relies heavily on imported machinery and components from China. This open production cycle limits India’s ability to reduce its trade deficit and develop self-reliance in manufacturing.
Implications for Economic and Geopolitical Relations
Increased trade with China risks widening India’s trade deficit and could harm domestic industries by displacing local production. Trade alone is unlikely to drive stronger bilateral ties. Instead, geopolitical considerations and the shared interest in countering US tariff policies may be more important in encouraging cooperation.
Future Prospects
While India seeks to diversify export markets, China remains a challenging partner due to competitive imbalances. Any improvement in relations will likely depend more on strategic and political factors than on trade benefits. The risk of growing economic dependence on China remains a concern for India.
Questions for UPSC:
- Critically discuss the impact of US tariff policies on India’s foreign trade strategy and its relations with China.
- Analyse the challenges faced by India’s manufacturing sector in reducing trade deficits with technologically advanced countries like China.
- Examine the role of geopolitical factors in shaping India-China relations amid economic interdependence and border disputes.
- Estimate the consequences of trade imbalances on domestic economic growth and foreign policy decisions in emerging economies like India.
