U.S. President Donald Trump announced that he was imposing 25 percent tariffs on goods from India. This trade war escalation comes amid New Delhi’s efforts to improve its economic ties with China as well as accusations that such moves reflect India’s “submission” to Beijing.
There have indeed been striking shifts in the triangular dynamic between the United States, China, and India. Trump has given some signals of moving closer to China, prompting New Delhi to find its own balance between Washington and Beijing. But it would be a mistake to see the recent Indian outreach to China as an Indian concession driven by strategic frailty. Rather, it is a form of tactical accommodation to evolving geopolitical realities. New Delhi’s engagement with Beijing is aimed at achieving concrete economic benefits without compromising core security interests.
India’s economic ties with China have been frozen since the 2020 border clashes in Galwan and the military standoff that ensued. At that time, India responded to Beijing’s bid to unilaterally change the status quo on the Line of Actual Control (LAC) by declaring that business as usual between the two countries was over. More than 300 Chinese apps, including TikTok, were banned, and Chinese telecoms were restricted from the rollout of 5G services in India. Additionally, the government mandated that companies based in nations that shared a land border with India could only invest after obtaining official government permission.
In October 2024, however, the two countries decided to defuse the situation, and Indian Prime Minister Narendra Modi and Chinese President Xi Jinping met for the first time in five years on the sidelines of that year’s BRICS leaders’ summit. India interpreted the resulting understanding between the two countries as a win. The Indian Army secured the ability to patrol key points along the border, and Indian herders were able to resume grazing. By accepting renewed Indian patrol, the Chinese side stepped back from its efforts to impose new facts on ground. Furthermore, after five years, China has again allowed pilgrims from India to resume visiting Mount Kailash and the Mansarovar and Rakshastal lakes. India, in return, has resumed issuing tourist visas to Chinese nationals. Beyond this, media and civil society exchanges are taking place regularly again, and talks are underway to restore direct flights between Indian and Chinese cities.
Now, the Indian economic bureaucracy is eager to kick-start renewed business cooperation. Finance Minister Nirmala Sitharaman recently indicated a relaxation of capital restrictions. The government’s lead economic think tank, NITI Aayog, has also reportedly made the case for allowing Chinese entities to acquire a stake of up to 24 percent in Indian companies without needing any additional clearances. The rationale is that Beijing accounts for 60 percent of global electronics manufacturing capacity and that it would not be feasible to completely lock China out of the sector. Furthermore, the Indian government’s 2023-24 Economic Survey came out in favor of inviting Chinese companies to establish factories in India to manufacture goods for the export market.
What, then, has motivated India’s shift toward rapprochement with China?
First and foremost, there is the business case. Sitharaman has disclosed that major corporations in India made a pitch for easing investment curbs. Companies in electronics manufacturing had complained that the lack of visas and clearances for suppliers had cost them $15 billion in losses and 100,000 jobs between 2020 and 2024. While the government has made a push to shift manufacturing from China to domestic sources, a host of issues, from logistics to capacity and technology limitations, have made this difficult.
But geopolitics are also clearly a factor, specifically the belief that Washington has shifted its positions toward Pakistan and China. Indian analysts believe that the Trump administration may be simultaneously moving closer to Beijing and Islamabad in order to peel Pakistan away from China. New Delhi, in turn, hopes that with its own pivot to China, it can exploit the first of these trends while preempting any negative fallout from the second.
In June, Trump hosted Pakistan Army chief Asim Munir after Islamabad endorsed him for the Nobel Peace Prize. Gen. Michael Kurilla, the head of U.S. Central Command, was also given one of Pakistan’s highest state honors, while Kurilla, in turn, commended Pakistan’s initiatives in counterterrorism.
This sudden Washington-Islamabad proximity has set off suspicions in Beijing, raising questions about whether Washington is seeking to disrupt the China-Pakistan Economic Corridor or gain information on the efficacy of Chinese weapon systems in Pakistan’s arsenal. Chinese commentators also speculate that the U.S. plan to establish a South Asian encryption facility in Pakistan could pose a challenge to the cross-border settlement mechanism for renminbi. Thus, there is a sentiment among the Indian strategic community that an economic reopening to Beijing could be in the interests of both nations amid strains in China-Pakistan “ironclad friendship.”
More important, from New Delhi’s point of view, is the perception that the United States is trying to reach an accommodation with China. Recent U.S. presidential administrations have consistently sought to deny China cutting-edge technology that can augment its military capabilities. Yet there seems to have been a change of heart recently, with the White House clearing the sale of Nvidia’s H20 chips to China. Now, there is a feeling that China has accumulated significant leverage in its tariff tussle with the United States by weaponizing its control of rare-earth minerals and magnets. The Chinese economy has also fared better than expected, growing 5.3 percent in the first half of the year despite the onslaught of tariffs. Now, after three rounds of trade negotiations, both the United States and China have decided to extend their tariff truce.
Beyond all this, there are also fears that Trump is going soft in the strategic sphere. In late July, reports emerged that the White House had denied Taiwanese President Lai Ching-te permission to stop over in New York en route to Central America due to Beijing’s objections. And then, looming over all of this, is the likely summit between Trump and Xi later this year.
India has articulated its ambitions publicly of becoming the world’s third-largest economy by the end of this decade. Policymakers are also aware that increasing per capital incomes is a must if India wants to become a developed nation. But for both of these goals, technology and capital are vital. As New Delhi negotiates the vicissitudes of America First, it sees a new role for China in providing them.
While making this recalibration, however, New Delhi has still stood up to Beijing on key military interests. India refused, for example, to sign the statement that emerged from the Shanghai Cooperation Organisation (SCO) defense ministers’ meeting in June, saying that it did not reflect New Delhi’s concerns over terrorism. In July, Indian Foreign Minister S. Jaishankar traveled to China for an SCO summit after a gap of five years. While there, Jaishankar again voiced India’s concerns over terrorism, reminding SCO member states that the group was originally founded to help combat terrorism, separatism, and extremism.
And these words have been backed by deeds. In the aftermath of the terrorist attack in Pahalgam in April, India launched Operation Sindoor, one of its most extensive military campaigns since the 1971 India-Pakistan War. During the conflict, India said it struck terrorist training camps and important military facilities in Pakistan. In doing so, India announced that its “new normal” would be to treat cross-border acts of terrorism as an act of war.
With its cautious reopening to Beijing, New Delhi is responding judiciously to a complex and evolving strategic environment. India will continue to build its own domestic capacities while forging external partnerships with like-minded nations. However, India has also already demonstrated that it is quite capable of pushing back against Chinese aggression if necessary. It was Beijing’s grudging acceptance of its role in unilaterally altering the status quo along the LAC that started the latest round of Sino-Indian rapprochement.
