The two Asian neighbours have been quietly moving towards enhancing economic and trade cooperation, focusing on synergies rather than differences.

China has toppled the US to become India’s largest trading partner. Between April 2025 and February 2026, bilateral trade between India and China touched US$137 billion. Trade between India and the United States during the same period stood at US$ 128 billion.

That is not surprising. As uncertainty over trade with the US rises, with the Donald Trump administration slapping a whopping 50% tariff on Indian imports, India has aggressively pressed the pedal on diversification of markets.

What is important to note is that trade with China - read imports - may inch further upwards, sources say.

Stability In Trade

“Trade between the two countries has been stable through the years despite ups and downs. The idea is to allow businesses to continue operations normally. The government is clear—it will not let the economy suffer,” a senior official of the Commerce and Industry Ministry told The Secretariat.

This is expected to bring relief to the country’s businesses, especially the micro, small, and medium enterprises (MSMEs), which have been hit hard by the West Asia crisis.

Even a slight choke in the import of raw materials from China or elsewhere could deal a severe blow to the Indian economy. Industrial goods, active pharmaceutical ingredients (APIs), organic chemicals, and electrical parts are among the key items imported from China into India. Most of these are essential for MSMEs.

Xu Feihong, Beijing’s Ambassador in New Delhi, last week put out a post on X. “Glad to know that China has become India’s largest trading partner in FY2026 – for the 11th straight month,” he said.

With the rise in global risks impacting the prices of imported raw materials and possible disruption in supply chains, India’s reliance on China for inputs could increase in the coming months.

India’s Economic Policy With China

The two Asian countries have been quietly deepening economic and trade cooperation. In 2020-21, too, trade between India and China had touched US$86.40 billion.

Following clearance by the Ministry of External Affairs late last year, cross-border trade between the two neighbours will resume through Himachal Pradesh’s Shipki La Pass. It has remained closed since 2020 following the COVID pandemic and the Galwan clash.

A delegation of Indian businesses, comprising several startups, also undertook a visit to China recently. “The idea is to push business-to-business engagements and continue to leverage each other’s strengths,” a government official told The Secretariat.

Such visits may increase.

India-China Trade Deficit

But there’s a caveat.

The exponential increase in trade volumes between the two countries may not reflect the complete picture. It has led to the biggest single trade deficit India is running with any country, the Indian Embassy in Beijing noted. 

“Our trade deficit concerns are two-pronged. One is the actual size of the deficit. Two is the fact that the imbalance has continuously been widening year after year to reach US$ 99.21 billion in 2024-2025,” it said.

India’s exports to China stood at US$ 14.25 billion in 2024-25, lower than the US$ 21.19 billion recorded in 2020-21.

The official, however, said this should be looked at in the broader context. 

“The widening trade deficit is a cause for concern, but more important is to look at the larger picture - and that is to provide all necessary support to the Indian economy and businesses,” the official said. 

“The issue of reducing the trade deficit needs to be looked into, and a well-thought-out mechanism that is beneficial to both sides must be put in place,” the official said.