India’s Trade Tightrope Act Between Beijing & Washington

At the heart of this unfolding drama is the US$ 118.40 billion trade between India and China, with Beijing selling some US$ 101.74 billion worth of goods to New Delhi in 2024 — a paradoxical relationship where economic pragmatism has often coexisted alongside deep political mistrust. 

Despite tensions along the Himalayan border and New Delhi’s ban on Chinese tech apps and suspicious veto on many investment proposals from Beijing, trade volumes have not only endured but grown.

India remains reliant on Chinese raw materials for most of its major imports, including “must-have” pharmaceutical building blocks, rare earth magnets, and a host of components for the thriving electronics sector. 

However, that relationship is now being tested by global cross-currents, not the least by the tariffs and pronouncements made by US President Donald Trump over India's trade with China.

While China is the primary target, India is not immune. Despite intense trade negotiations, a 10-15 per cent across-the-board tariff could hit Indian exports of textiles, pharmaceuticals, auto parts, and gems, just as they are beginning to break into global markets disrupted by the US-China decoupling.

A Shifting Trade Geometry

For Indian policymakers, the challenge is balancing two conflicting forces: Growing strategic convergence with the US and a deep-rooted trade dependency on China. For instance, Indian drugmakers, who managed to earn the moniker of “pharmacy of the world”, bought about 43.45 per cent of its API requirements from China.

“We are trying to break that habit. We are raising the duty charged on API imports from 5-10 per cent to 25-35 per cent from August 1,” said top officials with the Ministry of Chemicals. This is being done for “more than 40 high volume drugs, including antibiotics, antivirals, and hormones to revive domestic API units, and to protect our manufacturers from global supply chain disruptions”, the officials added. 

At the same time, a productivity-linked incentive (PLI) scheme, which was rolled out a few years ago, is expected to help the industry manage to scale up and compete. Whether the twin policy thrusts succeed or not is, of course, a question which not everyone is sure of. 

“China's cost-efficient production, strong infrastructure, and government subsidies make it an attractive source for Indian manufacturers. However, setting up equivalent manufacturing facilities in India has historically faced limitations such as high costs, regulatory delays, and infrastructure gaps… will the PLI scheme and tariff hikes plug our problems, one can’t say for sure,” pointed out Siddhartha Dasgupta, advisor to several pharmaceutical companies.

Emerging World API Player

India is slowly emerging as a global API player, accounting for 8.8 per cent of global output by end-2023, though this is significantly lower than China’s 80 per cent share of the world API market. 

“Pharmaceuticals is just one area, India has the ability reinforced by the new tariff regime to disrupt and improve its standing in other areas, including automobiles and electronics,” points out Ajay Johri, an independent merchant banker, advising East Asian Banks. 

But the gap is still huge. India exported about 5.3 million automobiles in 2024-25. In comparison, China sold 31.4 million cars in calendar year 2024.  India still doesn’t figure in the world’s top 10 electronics manufacturing and exporting nations. China, which provides US$ 3.58 trillion worth of electronics to the world, continues to dominate this space.

Nevertheless, as senior Commerce Ministry officials say, this moment, in many ways, is India’s opportunity to become the world’s backup factory — a trusted alternative to China in a polarised global economy. 

However, the risks are many, as Indian manufacturers who were starved of magnets for their factories churning out electric vehicles and other new-age economy gadgets realised earlier this year. “Completely disentangling from the Chinese supply chain set-up may not be possible even in a decade,” said Saibal Ghosh, former CEO of Suez India Ltd.

Jaishankar’s Beijing Visit & Signs Of Trade Thaw

It was in this context that India’s External Affairs Minister S Jaishankar’s recent visit to Beijing takes on weight far beyond diplomatic pageantry. Jaishankar’s meetings with Chinese Foreign Minister Wang Yi and Vice President Han Zheng were not just about defusing border tensions. They were a deliberate signal to global investors: that India is not closing its doors to China, even as it draws closer to the West.

In behind-the-scenes conversations, Indian officials raised barriers to Indian exports, particularly in the agritech and service sectors, as well as restricted access to Chinese markets for Indian pharmaceuticals. Chinese officials, in turn, urged New Delhi to reconsider its curbs on Chinese investments and app-based tech firms — part of a broader push by Beijing to reintegrate economically, even if political differences persist.

Officials said the thinking now is that India would clear Chinese investment proposals in some sectors, such as solar cells and batteries. “It will be on a case-to-case basis. No blanket approval for Chinese investments is possible,” they indicated.

Foreign direct investment (FDI) from China into India has slowed to a trickle since 2020, due in part to tighter Indian rules requiring government approval for any investment from neighbouring countries. However, Chinese capital is still finding its way in — through Singaporean subsidiaries, global venture funds, and indirect partnerships. Sectors like EV batteries, fintech, and telecom infrastructure continue to feel the pull of Chinese technology, even as policymakers push for self-reliance.

Trump’s shadow continues to loom large. His rhetoric also places India in a complicated bind. Washington's tightening of trade with both Beijing and New Delhi could lead to renewed Asian regionalism — with expanded economic re-engagements between the countries, including China, ASEAN members, and even Russia.

Investment, Trade Tango

On the other hand, American companies — from Apple to Tesla — are accelerating India investments, banking on policy stability and the need for an alternative low-cost production geography. India needs to plug infrastructure gaps while addressing its regulatory red tape and inflexible labour environment.

India’s future in global trade may hinge not on grand summits or tariffs, but on how deftly it plays both sides. It must extract technology and crucial raw materials from China without compromising security, and secure market access in the United States without surrendering autonomy.