Frosty Ties Ease As Trump Pushes India Closer To China

Notably, the improved India-China ties follow the launch of tariff wars by US President Donald Trump against both countries. It also follows the recent Rio summit of BRICS, which was marked by Trump’s threat of 100 per cent tariffs against any perceived anti-Americanism by the bloc.

While strategic ties with the US may continue to deepen despite the strains imposed by these developments, there is no doubt that India is now looking to strengthen its relations with other countries in the global South.

An Unfolding Chinese Puzzle

Although China has been perceived as staunchly supportive of Pakistan, especially during Operation Sindoor, it also clearly recognises the emergence of India as an economic powerhouse. India also has a huge domestic market that remains alluring for Chinese businesses. No wonder, then, that economic ties between the two countries are growing deeper by the day, whether in terms of investment flows or bilateral trade. 

In the context of trade, however, concerns remain in this country over the situation of dangerous dependency on the northern neighbour. The yawning trade deficit is not worrisome just due to its numbers. In fact, with supply chain vulnerabilities becoming evident, there is a clear effort by China to weaponise supplies of critical products.

The deepening reliance on such imports was initially flagged during the pandemic, when shortages of active pharmaceutical ingredients (APIs) became an element of the health crisis. These APIs, it turned out, came largely from China. 

More recently, imports of laptops, tablets, and other electronic goods from the same source began to be considered a security concern. One of the potential hazards was that imported hardware could compromise the sensitive data of users to become a security issue.  

The attempt to monitor imports two years ago, however, ran into several hurdles. The most significant was the outcry from both the domestic IT industry and foreign Big Tech. In addition, the US and South Korea raised the issue bilaterally and at the WTO.

The plans to introduce a registration and licensing system, which would have been a return to the pre-liberalisation era for imports, had to be shelved indefinitely. Instead, an “import management system” was put in place, which mandated IT hardware companies to register and report data related to their inbound shipments. 

Rare Earth Supplies & US Retaliation

Rare earth elements (REEs) are yet another resource for which India is primarily dependent on China, much like the rest of the world. With 90 per cent of the world’s REEs coming from this country, it has effectively weaponised exports by curtailing them.

Initially, the curbs were aimed as a retaliation against the US, which had restricted exports of high-end chips to China. These were then extended to countries like India. It has taken high-profile diplomatic negotiations by Foreign Secretary Jaishankar to untangle the knots impeding rare earth supplies. 

While the furore over REE shortages and the impact on the electric vehicle (EV) and electronics sectors continues, yet another area of dependency has come into the limelight. The supply of phosphatic fertilisers from China, which had risen to as much as 40 per cent of total imports, has slowed in recent months. The stalling of shipments is reported to have begun several months ago, creating shortfalls during the Kharif sowing season.

As import delays are expected to continue, the government has secured sufficient stocks of diammonium phosphate (DAP) for the upcoming Rabi season from other leading suppliers like Saudi Arabia and Morocco. This may have averted a crisis in the farm sector for the time being, but it is evident that the economy’s dependence on China needs to be reduced as soon as possible.

In Search Of Domestic Alternatives

Efforts have already been made in some areas, like APIs. In the case of electronic goods, however, progress has been slow, even though India has now become a major exporter of mobile phones. Rare earths, however, are a resource that should have been exploited earlier, given the fact that this country has considerable reserves of these elements.

The drawback in this case has been that these elements have been combined with thorium, a radioactive element, but this is not an insurmountable hurdle. Similarly, sourcing phosphatic fertilisers from alternative sources may not be easy, but the efforts have finally yielded productive results.

Thus, policy shifts have to be undertaken with the specific aim of reducing dependence in critical economic sectors. It is well known that China grants heavy subsidies to industries to ensure that goods are offered at rock-bottom rates.

Providing a comparable ecosystem may be an uphill task, but it is achievable. The fact that Apple and Samsung have jointly ensured that mobile phone production and exports have risen exponentially means this can be achieved in more economic sectors.

These efforts are essential even though India-China ties look to be heading for better times. In the long run, self-sufficiency is a better option than depending on an unreliable supplier.