As I write this column from Boston, the biggest American newspapers have the Tianjin meeting of Prime Minister Modi, President Putin, and President Xi—all three smiling and shaking hands—as a leading news item. The sub-theme is also that President Trump’s policies are driving them closer, perhaps opening the door to an anti-US unity in international geopolitics.
The talk of an anti-American unity is perhaps premature. At least two of the three nations, China and India, have significant ties with the US, which can be ruptured only at a very great cost. Despite the talk of a decline, the US is still the world’s largest economy. At the end of 2024, according to the World Bank, America’s GDP was $29.18 trillion, which amounted to 26.2 per cent of the world economy ($111.33 trillion). A market of that size cannot easily be shunned. Indeed, most countries and corporations would covet access to it.
But there is no doubt that Trump’s radical break from America’s post-Cold War foreign policy, especially his use of tariffs as an economic and political tool, is creating new geopolitical and economic scenarios. Countries must take into account these changes as they make adjustments in their foreign policies. Of course, Trump is known to be mercurial and abrupt changes in his policies cannot be wholly ruled out. However, three things are likely to remain constant: use of trade tariffs, opposition to immigration, and smaller American investments in international security. The changes in these realms, if any, are likely to be of degree. Fundamental changes can take place only if the results of these policies are catastrophic for his MAGA base, especially via inflation or if the judiciary intervenes more firmly than it has done so far.
Exploring new markets
How should India, severely jolted by Trump’s tariffs, imagine its way forward? Let me suggest that China will become even more central to India’s foreign policy than it has been in recent years. But how India pursues its interests vis-à-vis China will remain a complex task.
The first complication is that India will now approach China from a position of considerable weakness. When the US saw India as a bulwark against China, at least in the Indo-Pacific region, American support enhanced New Delhi’s power. If we now assume that the Indo-Pacific power balancing is out of the picture for the next three and a half years, India will deal with China as a singular entity, not as a US-supported power.
Nonetheless, it is in India’s interest to cultivate China. It is indisputably the second superpower in the world today, combining both economic and strategic might. India could have been somewhat equal if its economy had grown at 8-9 per cent per annum over the last three decades or so. India’s economic growth did take off after 1991, but it never touched Chinese levels.
Consider where the two countries’ economies are at the moment. A great deal has been made out of the fact, especially in government circles, that India is the world’s fourth-largest economy. But that says nothing about the gap between India and China. At the end of 2024, India’s GDP was $3.9 trillion (it passed the $4 trillion mark in recent months). While that was higher than the GDP of the United Kingdom ($3.6 trillion) and France ($3.2 trillion), it was only roughly a fifth of China’s GDP ($18.7 trillion). When it comes to the overall size of the economy, even Germany ($4.7 trillion) and Japan ($4 trillion), the third and fourth largest economies at the time, were far behind China.
This gap has serious implications for India. Nearly 65-70 per cent of Indian exports to the US have lost their American buyers after Trump’s tariffs. A market diversification strategy is inevitable, and looking for opportunities in the second-largest economy is only rational. While India is a mere 3.5 per cent of the world economy, that number for China is a whopping 16.8 per cent. China enjoys a huge trade surplus vis-à-vis India. With American markets heavily truncated, India will have to try to cut that deficit by exploring Chinese markets.
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Investment gap
Trump’s policies will have another terrible economic effect, for which India will have to find alternatives. They will dampen potential US investment in India. The basic assumption of the “China plus one” strategy was as follows: to escape rising US-China tensions, American investors would gradually move out of China and invest in countries such as Vietnam, Malaysia, Thailand, and India. Apple mainly chose India, while many other companies principally switched to Vietnam. Apple’s exports from India have managed to escape US tariffs for now, but other investors may not be so lucky. That being so, American investment in India will almost certainly decline.
Having huge amounts of capital, China can potentially fill the investment gap. It is no longer simply a specialist in labour-intensive production (apparel, footwear, toys). It is scaling new heights in technologically advanced sectors (artificial intelligence, telecommunications and robotics, electric cars, aerospace and maritime engineering, wind and solar energy).
There is only one other non-US market that matches China. If the European Union (EU) is viewed as a single economic unit, its GDP is $19.4 trillion. The search for non-American alternatives should therefore lead to an exploration of opportunities in China as well as the EU.
Even with the EU option around, China will have to be a significant part of India’s economic policy. But there is an important complication. Unlike the US, an ally we are beginning to lose, India has a difficult security relationship with China. This is true in two senses. China is the greatest defence ally of and weapons supplier to, Pakistan. And it also has an unresolved border dispute with India.
How will the security logic be affected by the likely economic logic of the relationship? Handling this question will be a great challenge of India’s Chinese policy.
Ashutosh Varshney is Sol Goldman Professor of International Studies and the Social Sciences and Professor of Political Science at Brown University. Views are personal.
(Edited by Prasanna Bachchhav)