Amid Trump’s Tariff Onslaught, India and China Forge Cautious Path

Amid Trump‘s Tariff Onslaught, India and China Forge Cautious Path Toward Economic Reconciliation

PAHARI BARUAH

As the dust settles from the 25th Shanghai Cooperation Organisation (SCO) summit, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping have signaled a tentative reset in bilateral ties, pledging to resolve longstanding border disputes and enhance economic cooperation amid escalating U.S. trade pressures.

The meeting, held on the summit’s sidelines, comes just days after U.S. President Donald Trump doubled tariffs on Indian imports to 50%, citing New Delhi’s continued purchases of Russian oil as a key grievance.

This punitive measure, which Trump described as correcting a “totally one-sided disaster” in U.S.-India trade relations, has prompted India to explore deeper partnerships with China, the world’s second-largest economy.

The SCO gathering in the northern Chinese port city of Tianjin, attended by over 20 leaders including Russian President Vladimir Putin, underscored a collective pushback against Western dominance. Xi, in his keynote address, urged member states to reject a “Cold War mentality” and foster AI cooperation, while announcing a $280 million aid package for SCO nations and plans for a new development bank and international energy hub.

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Leaders signed the “Tianjin Declaration,” outlining a decade-long development strategy through 2035, emphasizing multilateralism and regional stability. For India and China, the summit marked a “new chapter” in relations, with Modi and Xi agreeing that their nations are “partners, not rivals,” and committing to a “peaceful environment” along their shared border.

This rapprochement builds on positive momentum since their October 2024 encounter at the BRICS summit in Kazan, Russia, where initial steps toward de-escalation were taken. Recent developments include the first visits by Indian defense and foreign ministers to China in June and July 2025, aimed at managing expectations and restoring trust post the 2020 Galwan Valley clash that killed 20 Indian and four Chinese soldiers.

“The right choice for China and India is to be friends,” Xi told Modi, emphasizing that border issues should not define their broader relationship. Modi echoed this sentiment, noting that bilateral ties have entered a “meaningful direction.”

Economically, the stakes are immense. India’s trade deficit with China ballooned to a record $99.2 billion in the 2024-25 fiscal year, driven by surging imports of electronics, machinery, and chemicals. In June 2025 alone, India exported $1.38 billion to China-a 16.4% monthly increase-while China shipped $11.1 billion worth of goods to India in May.

Cumulative Indian foreign direct investment in China reached $2.5 billion by March 2025, per India’s Department for Promotion of Industry and Internal Trade. Yet, Trump’s tariffs threaten India’s export-driven sectors, such as diamonds, prawns, textiles, and jewelry, which account for a significant portion of its $86.5 billion annual exports to the U.S. Analysts warn these levies could derail India’s projected 6-7% GDP growth, pushing it toward alternative markets and supply chains.

China, facing U.S. tariffs as high as 145% on its exports, sees India as a vital outlet for its manufacturing surplus, with 1.45 billion potential consumers. “China opposes Washington’s steep tariffs on India and will firmly stand with India,” declared Chinese Ambassador to India Xu Feihong earlier this month.

Concrete steps from the summit include resuming direct flights-halted since 2020-and easing visa restrictions to boost tourism and business ties. Experts anticipate “soft wins” like lower import duties on raw materials and components, where India remains heavily reliant on China, potentially aiding sectors like electronics manufacturing.

However, challenges persist. The unresolved 3,488-kilometer Himalayan border remains a flashpoint, compounded by disputes over Tibet, water resources from shared rivers, and China’s close ties with Pakistan. India’s national security concerns have led to bans on over 200 Chinese apps, including TikTok, and scrutiny of investments, slowing infrastructure projects.

“This is an uncomfortable alliance,” notes Priyanka Kishore of Asia Decoded, highlighting the need for dialogue to manage external expectations. Meanwhile, Modi’s pre-summit stop in Japan underscores India’s hedging strategy, strengthening alliances with ASEAN nations to promote a “Make in Asia for Asia” framework.

The summit’s optics-Modi and Putin’s hour-long limousine ride and Xi’s calls for Global South solidarity-sent a defiant message to Washington. Trump, responding on Truth Social, reiterated his stance, claiming India offered to slash tariffs on U.S. goods to zero but warning “it’s getting late.” As Alyssa Ayres of the Council on Foreign Relations observes, Trump’s policies have inadvertently nudged India closer to China, its largest trading partner despite ongoing frictions.

In a multipolar world, the India-China dynamic could reshape global trade flows, leveraging China’s manufacturing, India’s services, and Russia’s resources. Yet, as Chietigj Bajpaee and Yu Jie of Chatham House caution, “What happens in this relationship matters to the rest of the world.”

While one summit won’t erase decades of mistrust, it offers a pragmatic lifeline amid economic turbulence, potentially benefiting millions through stabilized supply chains and reduced uncertainties. For now, the dragon and the elephant are dancing delicately, eyes fixed on a shared horizon beyond the tariff storm.

01-09-2025

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