India Is Winning the US-China Trade War

As geopolitical tensions rise, BRICS member state, India, has leveraged its political neutrality, expertly striking a balance between East and West. New Delhi has managed to enhance its economic ties with Russia despite pressure to join Western sanctions and has successfully presented investment in India as the perfect solution to fears in Washington of an overreliance on Chinese supply chains.    

Beginning with Trump, who fired the first salvos of the trade war, President Biden has doubled down on his predecessor’s desire to curtail a rampant US trade deficit with China. Attempts at reducing this deficit have since evolved into a broader set of objectives, which include reducing US dependence on Chinese supply chains and counteracting China’s technological advancement especially with respect to advanced semiconductors.

According to the Australian Strategic Policy Institute, China has already surpassed the West in most key technological areas, leading in 37 out 44 analysed sectors ranging from artificial intelligence to hypersonic missiles. Combined with its dominance in the production of green energy technologies like solar panels and electric vehicles, the US increasingly views China as its major strategic rival.    

But the US still has certain advantages in areas like chipmaking, vaccines and quantum computing which it hopes to retain. To this effect, President Biden recently signed an executive order limiting US investments in certain Chinese tech companies and has already pressured allies like the Netherlands and Japan to restrict the export of some chipmaking equipment to China.

Beijing has responded with measures of its own, following through on a threat to limit the export of certain rare earth metals crucial for the production of chips and military equipment. These issues are unlikely to be resolved any time soon, with tensions over increased US diplomatic engagement with Taiwan adding a security dimension, increasing the likelihood of further tit-for-tat trade restrictions.

This is where India comes in. Apple has already increased its footprint in the country after its Chinese output declined due to lockdown restrictions and following a recent visit to Washington by President Narendra Modi, US military equipment, such as F414 jet engines, will soon be manufactured in India. India already collaborates with Russia to produces Kalashnikov assault rifles for the Indian military at a factory in Utter Pradesh, which shows just how adept New Delhi has been at playing both sides.

India’s Brilliant Balancing Act 

India is the most populous and fastest growing major economy in the world and has successfully leveraged its reputation as the world’s largest democracy to improve business ties with the United States. This improvement in relations with Washington (which have not been historically strong due to longstanding US support for Pakistan) have taken place amidst a backdrop of increased Indian co-operation with Russia.

Russia is a traditional ally and major weapons supplier to India. When the Ukraine War broke out, New Delhi remained strictly neutral and increased trade with Russia who is now India’s largest oil supplier, overtaking both Iraq and Saudi Arabia. That Modi has managed to improve India’s ties to the US while advancing relations with Russia has been a masterstroke of international diplomacy.

India has also made great strides in positioning itself as the voice of the Global South and has called for major reform of international institutions like the IMF and UN. India proposed the founding of the BRICS’ New Development Bank and has found widespread support for calls to reform the UN Security Council with political leaders from Turkey, Malaysia, South Africa, and even the UK Foreign Secretary, James Cleverly, all agreeing that India should be made a permanent member.

Additionally, India has been one of the most active BRICS nations in advancing the use of domestic currencies for bilateral trade. India has agreements to trade in local currencies with a number of countries including Russia, Iran, the United Arab Emeritus, and Indonesia, and recently reached out to the South African Reserve Bank with a similar proposal as it seeks to internationalise the rupee.

While China has been somewhat tentative in terms of positioning its currency as a global reserve, having enjoyed a massive competitive advantage in a financial system based on a strong US dollar, India appears eager to begin the process of internationalising the rupee while it industrialises its economy. China is unusual in this respect as the Portuguese, Spanish, Dutch, French, British and Americans all enjoyed reserve currency status when they were the world’s dominant trade powers.   

India is clearly thinking ahead. As such, an expanded BRICS bloc will remain an important platform for India as it looks to deepen ties with other emerging market economies in Africa and the Middle East to boost trade and secure long term access to crucial energy resources in light of increased Chinese influence in these energy-rich regions. This is already apparent with respect to India’s warm relations with Iran which is another country the United States considers hostile to its interests.

Maintaining healthy ties with China

While increased US investment is good for India, it is important to acknowledge that China and the US remain each other’s largest trade partners and there are potential limits to how many restrictions can be applied before they become self-defeating. Multiple political and business leaders from the US have visited China in recent months in an attempt to repair US-China relations and Chinese solar panels and battery manufacturing will remain crucial to President Biden’s green energy agenda.

Maintaining good ties with China will also remain important for India, which is another benefit of the country’s BRICS and Shanghai Co-operation Organisation (SCO) memberships. Despite border disputes Modi has maintained warm relations with China, with India-China bilateral trade already in excess of $130 billion per annum and growing. Despite increased competition for foreign investment, the two nations continue to co-operate productively in these multilateral formats.      

India’s foreign policy achievements in recent years have been remarkable. While South Africa has been walking on eggshells trying to navigate its non-aligned stance, India has benefitted from the growing rivalry between the US and China as Washington looks to counteract the growing alliance between Moscow and Beijing. India has taken advantage of the situation, positioning itself a leader of the Global South, while managing to its improve economic ties with Russia, China, Iran, and the United States, all at the same time.