'Hindi-Chini Bhai Bhai'? Trump's tariffs may push China closer to India — and the signs are visible

US President Donald Trump on Wednesday unveiled his sweeping ‘Liberation Day’ tariffs, imposing a staggering 54% tariff on Chinese imports and a “discounted” 26% (official order mentions 27%) on Indian goods. Before the tariff hike, the average tariff imposed by the US on its trading partners was 3.3%, among the lowest globally.

With Trump igniting a potentially ruinous global trade war, Beijing has said it “firmly opposes” the tariffs on its exports, and had vowed “countermeasures” to protect its rights and interests. It also accused the United States of a "typical unilateral bullying practice".

Meanwhile, New Delhi reacted cautiously to Trump's sweeping tariffs with exporters saying the flat 26 percent on exports imposed on fifth-largest economy could have been far worse.

While these tariffs are aimed at pressuring these economies, they may have an unintended consequence — bringing India and China closer on trade and economic cooperation.

India and China have long had a complex relationship, marked by political tensions and border disputes, but their economic interdependence has never faded. With Trump’s latest trade war escalation, both nations may find common ground to deepen trade ties, reduce dependence on the US market, and develop alternative economic strategies that benefit both sides.

China’s overtures to India – a strategic move?

Interestingly, Beijing seems to be signalling its interest in improving economic ties with India despite lingering political differences, particularly in the recent days amid the buzz over Trump’s tariffs.

A day before the announcement of tariffs by the US President, Beijing's Ambassador to New Delhi Xu Feihong said that China was ready to import more Indian products and strengthen trade cooperation.

"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," Chinese Ambassador Xu Feihong told Chinese state-backed newspaper the Global Times in an interview published on Monday.

"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.

On Tuesday, Chinese President Xi Jinping told his Indian counterpart Droupadi Murmu that the two countries should work more closely together and their relationship should take the form of a "Dragon-Elephant tango" - a dance between their emblematic animals.

The Chinese and Indian presidents exchanged congratulatory messages on April 1, the 75th anniversary of the start of their diplomatic ties, as tensions ease after a 2020 clash between their troops along their shared border in the Himalayas.

In March, the Chinese media praised PM Modi for his “pragmatic approach” after he emphasised that New Delhi and Beijing should engage in a "healthy and natural" competition while ensuring that differences do not escalate into disputes.

Speaking on India-China relations during the podcast with Lex Fridman, PM Modi highlighted the deep historical ties between the two nations. Addressing the 2020 border standoff, PM Modi acknowledged the tensions but noted that his recent meeting with Chinese President Xi Jinping has led to progress. "After my meeting with President Xi, we have seen a return to normalcy at the border. We are working to restore conditions to how they were before 2020," he said.

Qian Feng, director of the research department at the National Strategy Institute at Tsinghua University, told the Global Times that PM Modi’s remarks underscore the Indian government's current pragmatic approach to advancing China-India relations, building on the positive momentum since the Kazan summit of the leaders.

Improving ties?

In January this year, India and China reached an agreement to resume direct air services after nearly five years, aiming to address their differences concerning trade and economic matters. This development came after a meeting in Beijing involving India's lead diplomat Vikram Misri and China's Foreign Minister Wang Yi.

India's foreign ministry announced that both parties would work on establishing a framework for resuming flights in the near future. China's foreign ministry confirmed the resumption and highlighted the significance of "mutual support and mutual achievement."

Notably, bilateral trade between India and China increased by 4 percent to reach USD 118.40 billion in the previous fiscal year, mostly driven by Indian imports from China.

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.

Following the border clash in 2020, New Delhi imposed restrictions on Chinese investments, banning over 200 Chinese apps and scrutinising FDI from Beijing, which remain imposed till date.

Trump tariffs – a shared economic predicament

These recent signals indicate that China sees an opportunity in strengthening economic ties with India, especially as both nations face mounting US trade pressure.

Trump's reciprocal tariffs aim to focus on countries that have significant trade surpluses with the United States. With India (26%) and China (54%) experiencing significant trade disruptions, it has become essential for them to explore other markets and trading partners.

With Trump imposing a punitive tariff on China, it will now look for alternative destinations for its exports, and India, with its 1.4 billion consumers and booming manufacturing sector, presents a lucrative option.

India, too, has a significant motivation to seek stronger trade relations with China. The 26% tariff imposed by the US will negatively impact Indian exports, particularly in industries such as textiles, auto components, and chemicals. Increasing trade with China could alleviate some of these losses. Additionally, if Beijing truly commits to opening its markets to Indian products, it could help decrease India’s ongoing trade deficit with China, a longstanding issue for New Delhi.

Areas of mutual benefits

·       Both India and China are heavily integrated into global supply chains, with the US being a significant destination for their exports. The tariffs incentivize them to diversify their supply chains, seeking alternative markets and sourcing materials from each other.

·       Both nations possess large consumer markets. Lowering trade restrictions between them could lead to a substantial rise in bilateral trade. China has the potential to boost imports of Indian pharmaceuticals, agricultural goods, and IT services, whereas India could acquire Chinese electronics and machinery.

·       While pharmaceuticals have been somewhat exempted from the newest tariffs, it is a sector where both countries have a strong presence. Increased collaboration could strengthen their position in the global market.

·       India's strengths in software and IT services could complement China's hardware manufacturing capabilities. They could collaborate on joint projects and expand their presence in each other's markets.

·       India relies heavily on oil and gas imports, and given the volatility in global energy markets, China is seeking new supply chain collaborations. Meanwhile, there is a growing trend of Chinese investments in renewable energy initiatives in India.

·       India has been pushing for greater access to China’s food and agricultural market. With the US imposing heavy tariffs on Chinese agricultural imports, China might need alternative suppliers. While China could import more Indian rice, sugar, tea, and seafood, India could gain from China’s need for alternative sources for edible oils, dairy, and grains.

·       China’s dominance in electronics manufacturing faces pressure due to US tariffs and supply chain disruptions. India, with its "Make in India" initiative, is attracting global manufacturers.

·       India has long struggled with a massive trade deficit with China. As of 2023, it stood at $100 billion due to heavy dependence on Chinese imports in electronics, machinery, pharmaceuticals, and chemicals. A shift in trade patterns, along with negotiated trade agreements, could help address this imbalance.

India sees silver lining in tariffs

While India faces a substantial 26% tariff from the US, it is much lower than was has been imposed on other countries in Asia – 34% on China, 46% on Vietnam, 37% on Bangladesh, 36% on Thailand, and 32% on Indonesia. Notably, all these countries are competitors for India while accessing the Indian market.

The tariffs placed on India were more significant compared to the 24% duty on Japan, 25% on South Korea, 24% on Malaysia, 20% on the European Union, or the 10% on the UK. However, only Malaysia genuinely competes with India in certain sectors, and most of these developed countries with lower tariffs typically do not compete with India in the same product categories.

Second, India may be a better position when it comes to trade negotiations with the US, giving the fact that the two are already negotiating a bilateral trade agreement with both sides aiming to finalise the first phase of the deal by October this year, and most of the discussions from India’s side would focus on diluting some of the adverse effects of these tariffs.

Challenges to economic reset

Trust deficit remains a challenge for deeper economic cooperation, following clashes in Ladakh and Arunachal Pradesh, which brought the bilateral ties to all-time low. Other than the public sentiment in India turning anti-China, the Indian government has restricted Chinese investments in certain sectors, slowing cooperation.

Secondly, both countries vie for worldwide investments in manufacturing, technology, and services. India's focus on self-reliance restricts complete reliance on China.

Moreover, the US, Japan, and Europe may pressure India not to align with China economically. India’s participation in Quad (US, Japan, Australia, India) means strategic alignments with the West.

As of today, the tariffs by the US seem to be compelling both India and China to reconsider their trade approaches, making a closer economic collaboration—at least in specific areas — seem unavoidable. Nevertheless, India should explore avenue to strengthen its relationship with China while also upholding its wider global alliances with the US and other partners.