As a close ally of the US in Asia, India will obviously figure in this Trumpian scheme of re-establishing a world order based on “America First”. 

The Trump administration is likely to knock on doors in Rasina Hill to contain China, not only economically, but also strategically. 

While this possibility might be a matter of comfort for the mandarins and policy-makers on Raisina Hill, it may also turn out to be a bane as well.

As the American bald eagle spreads its wings and tries to do a tango with the elephant in its race to defeat the dragon, the tusker may well find the embrace too suffocating for its own strategic and economic autonomy. 

Chinese Overcapacity

The problem for both the US and the world is that for many years now, China has been producing far more than either its own economy or foreign markets can absorb, creating huge overcapacities that in turn are leading to losses and factory shutdowns all over the globe.

In April this year, US Treasury Secretary Janet Yellen warned: "China is now simply too large for the rest of the world to absorb this enormous capacity."

India too has been crying itself hoarse over Chinese overcapacity, which for instance is distorting the market for steel, electronics and solar panels, and is demanding protective tariffs for local manufacturers. 

A recent study by Zongyun Zoe Liu, the Greenberg Fellow for China Studies at the Washington-based Council of Foreign Relations, has pointed out that by the early years of the 21st century, China’s surplus steel capacity exceeded the combined steel output of the US, Germany and Japan. 

By the end of the second decade of this century, Liu calculated, China ended up with similar excessive production of coal, aluminium, glass, cement, robots, electric vehicles, eletric batteries and other materials. 

This obviously led to China dumping these goods on buyers all over the globe, and in the process distorting the world's trading system and economy. 

What Should Be The Policy Response?

The Trumpian response to China’s strategy of under-selling is a classic one — tariff barrier. But that hasn't often worked.

During his last presidency, President-elect Donald Trump had systemically hit out at Chinese industry, imposing 10-25 per cent tariffs on a number of Chinese products. He has promised to do that again in his second term.

Though every other exporting economy in the world seems to be on his radar for tariff hikes, China holds a special place in it, as the right-wing in the USA, led by Trump, firmly believe that Beijing is the new "barbarian at the gate" challenging USA's place at the top of the world order. 

However, China International Capital Corp (CICC), in a research note, calculated that those tariffs imposed in Trump's first presidency had reduced Beijing’s exports to the US by just around 5.5 per cent, and dragged down China’s overall GDP by only one percentage point.

If Trump were to go ahead with his threat of imposing a 60 per cent tariff on Chinese goods in his second term, China’s overall export growth would be shaved by 2.1-2.6 percentage points and its GDP growth by 0.2-0.3 percentage points, the research note added.

The more recent Joe Biden-led US response to China’s overcapacity in clean energy production has been a mix of high tariffs on Chinese imports and substantial domestic investment under the Inflation Reduction Act (IRA). 

This reflects a dual strategy aimed at protecting and growing the USA's own clean energy industry. While tariffs are intended to limit the influx of Chinese goods like solar panels, EVs and batteries, the IRA’s funding injection is designed to create a competitive US market by supporting local manufacturers.

However, the problem with this response is that by subsidising its own industries to create large capacities, the US could potentially replicate what China has been doing, which in turn could further destabilise global markets. 

If the US wants to outcompete China, it should focus on what it and its allies are strong at — innovations — drawing on their entrepreneurial and technological strengths.

At the same time, the Trump administration would do well to foster trading alliances and restore multilateral trade bodies like the WTO that foster new supply chains, something the US has ignored in the past.

This would dent China’s ability to wage a "trade war" by underselling its rivals, using its spare dollars to subsidise its industry to overproduce and dumping their products across the world. 

This is also where India could become a crucial partner to the US in its supply chain, especially in critical technology, defence and renewable energy, as well as in the new trade partnerships that the Trump administration may foster to take on China’s might. 

India Has Yet To Do Its Bit 

However, India’s track record on these fronts — taking advantage of new supply chains or trade alliances — till now, has not been too great. 

Worried about its domestic producers' efficiency ratios and their ability to hold their own in the face of competition, India till now has not joined any major trading partnerships that were on offer, like the RCEP or even the EU-India Free Trade Pact.

It is to be seen if India can overcome its own domestic compulsions to join any US-floated trading compact in the future. 

In the past, when the US started moving away from its dependence on Chinese exports, many in India rejoiced as they believed this would mean New Delhi could gain from the Beijing’s losses.

However, what happened is that most of the gains went to Vietnam and Taiwan on one end of the world, and to Mexico and Canada on the other.

The move towards “decoupling”, which started during Donald Trump’s first presidency, continued through the reign of US President Joe Biden, whose administration has worked even harder to rework global supply chains, especially in the aftermath of the COVID-19 pandemic.

Over the last five years, Mexico became the largest exporter of goods to America, increasing its sales to the “biggest buying nation in the world” from US$ 342.68 billion in 2018 to US$ 475.60 billion in 2023. That’s a massive jump of US$ 132 billion, or 40 per cent, in just five years.

Vietnam’s merchandise exports to the US during the same period rose 133 per cent to hit US$ 114.44 billion in 2023, making it the biggest gainer in trade (in percentage terms) with the US. India, in contrast, managed to raise its goods exports by 54 per cent during the same period to US$ 83.77 billion. 

US Pivot Towards Asia: The India-China Factor 

The US considers India to be a natural ally in its pivot towards Asia and has consequently been wooing it for over two decades.

However, in its military, economic and technological competition with China, it often frets that New Delhi may prefer to stay neutral while playing both sides against each other.

In recent tmonths, India has signed a tenuous border deal with China, where the two sides will see their armies end face-offs in the high Himalayas.

While some American thinkers worry this could signal a détente between the two Asian rivals, others feel it will not detract India from its “course in its relationship with the US, which has deepened in recent years”.

Trump himself has, in the past, supported the Quad or quadrilateral security dialogue between Japan, Australia, India and the US, viewing it as a counterweight to China’s growing strength.

Observers feel the incoming 47th President can be expected to try breathe new life into the alliance. The Quad however over the last decade or so has settled down to merely holding annual naval excercises in the South China Sea and then telling Beijing that the move is not aimed at it. 

As a consequence, the US has forged another defence arrangement with the UK and Australia — AUKUS — to take on China's emerging might. 

Nevertheless, India is located at the centre of the Indian Ocean, whereby it can easily control with its naval assets, three of the world’s biggest choke points — the straits of Malacca and Hormuz as well as the Red Sea-Suez Canal — giving it an unusual strategic hef in this part of the world.

Over a hundred thousand ships transit every year through these shipping lanes, carrying two-thirds of the world’s hydrocarbon traffic and half of the global container traffic. Which means anyone who wishes to have any say over global trade must defend these lanes for its ships.

This makes India a coveted partner for any nation which wishes to be a heavyweight in the Indo-Pacific  region.

Howevere, both China and the US have built or are building or planning to build bases in the region which will allow them the same strategic advantage as India. and as a consequence may not wait for New Delhi  to decide on which side of the divide it will finally stand, as they formulate their strategies. 

They will also manuvre to stall the other's growing influence in the region. China’s bases in Myanmar are now being challenged by rebel militias, which the US is alleged to have covertly supported.

There is talk that the US had demanded a base in Bangladesh's St Martin's island and that Sheikh Hasina’s ouster may have been linked to her refusal to accede to such a demand. 

Only the future will tell which way the elephant will throw its heft, and whether it will be in time to catch on to the winds of change that are blowing in the world with Trump’s second ascedence to power. 

(You can read the first part here)