China extends olive branch to India amid Trump's tariff onslaught: What's behind the move?

Prime Minister Narendra Modi and Chinese Premier Xi Jinping - File Photo

US President Donald Trump’s “Liberation Day” reciprocal tariffs are feared to spark a global trade war, provoking a chain reaction of retaliation by major trading partners. The countries most likely in the crosshairs have called for talks -- even as they ready retaliatory measures.

Amid uncertainty over tariffs, China said that the US should “return to the right track of dialogue and cooperation at an early date but if war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”

Meanwhile, India is also assessing the possible avenues to limit the brunt of tariffs, after being termed as “tariff abuser” by Trump. The US President recently said that India will be “dropping its tariffs very substantially”.

For both Beijing and New Delhi, there tariffs have created new economic vulnerabilities. China, already entangled in a long-running trade war with the US, is seeing more of its exports squeezed. India, traditionally a U.S. trade ally, is now forced to reassess its reliance on the American market.

China ready to buy more goods from India

Just ahead of the tariff announcement, Beijing said that it is ready to import more products from India and strengthen trade cooperation.

Beijing’s ambassador to New Delhi Xu Feihong asked Indian enterprises to share “dividends of China’s development”.

He told Chinese state-backed newspaper the Global Times in an interview, “We are willing to work with the Indian side to strengthen practical cooperation in trade and other areas, and to import more Indian products that are well-suited to the Chinese market.”

“We also welcome more Indian enterprises to cross the Himalayas and seek opportunities for cooperation in China, sharing the dividends of China’s development,” he said.

India-China trade ties: A backgrounder

In 2010s, China became India’s largest trading partner, with imports from China outpacing Indian exports. Following the 2020-21 Galwan Valley clash, New Delhi imposed restrictions on Chinese investments, banning over 200 Chinese apps and scrutinising FDI from Beijing.

Despite the military standoff and political tensions, trade between India and China reached a record USD 135.98 billion in 2022, highlighting their deep economic interdependence. In 2023-24, the bilateral trade between the two countries stood at USD 101.7 billion, according to India’s trade ministry.

A major point of concern is India’s growing trade deficit with China — $100 billion as of 2023 — due to heavy dependence on Chinese imports in electronics, machinery, pharmaceuticals, and chemicals.

Trump tariffs: The shared threat

• Both India and China, as major exporting nations, face the prospect of significant economic disruption from increased US tariffs. Both India and China, as major exporting nations, face the prospect of significant economic disruption from increased US tariffs.

• Faced with a common economic challenge, India and China are motivated pragmatically to explore avenues of cooperation. This doesn't necessarily translate to a full-fledged alliance, but rather a strategic alignment on specific economic issues.

• Both nations are seeking to diversify their trade relationships to reduce dependence on the US market. This creates opportunities for increased bilateral trade between India and China.

• Current regional economic frameworks, such as BRICS and the Shanghai Cooperation Organisation (SCO), offer platforms for enhanced cooperation. These forums promote discussions on trade, investment, and economic development.

Areas of opportunity

As China stares at steep US tariffs, it sees India as an alternative production hub. Chinese companies are investing in Indian electronics, auto parts, and pharmaceutical sectors to avoid US trade restrictions.

Secondly, US restrictions on Chinese semiconductor firms have left a void in the market. India, which is investing in domestic chip-making, could see Chinese tech firms looking for new partners.

Thirdly, India imports large amounts of oil and gas, and with global energy markets in flux, China is exploring new supply chain partnerships. Chinese investments in Indian renewable energy projects are increasing.

Challenges and roadblocks

• India and China have a long history of territorial disputes, particularly in Ladakh and Arunachal Pradesh. These tensions could limit deep economic integration despite trade incentives.

• After the 2020 Galwan Valley clash, public sentiment in India turned strongly anti-China. The Indian government has restricted Chinese investments in certain sectors, slowing cooperation.

• India and China compete directly in industries like technology, telecom, and pharmaceuticals. Cooperation would require careful balance to avoid one side dominating the other.