On March 24, according to Indian media reports, under pressure from U.S. tariffs, the Indian government is considering easing a series of restrictions on China, including trade, flights, and visas, effectively reopening the door to Chinese investment.
Clearly, India’s steps toward the Americas in recent years are now shifting northward. This is a direct outcome of the reconciliation agreement reached between Chinese and Indian leaders in Kazan, Russia, in October of last year, with Trump’s tariff policies acting as a catalyst.
The peak of India-U.S. relations was Modi’s state visit to the U.S. in 2023, where Biden promised deep cooperation and expanded investment in areas such as space, artificial intelligence, and quantum computing.
However, Modi and his party barely scraped through in the 2024 general elections with what analysts called a “pyrrhic victor”y. The primary reasons were disappointing economic performance and alarmingly high youth unemployment; Modi found himself standing alone as the tide of public opinion receded.
When the economy is strong, voters can tolerate other social issues; when it falters, those issues are magnified.
Poor Investment Environment
The Modi administration pursued fiscal expansion policies, channeling massive investments into infrastructure while leveraging low labor costs to cultivate manufacturing—a strategy aimed at attracting foreign capital. This approach essentially followed the proven development trajectory of East Asian nations, demonstrating sound strategic vision for India’s national development. However, its implementation fell critically short of expectations.
Unlike East Asian countries, while India’s labor costs are low, its workforce has a strong awareness of labor rights. Additionally, despite significant investment in infrastructure, the quality of facilities remains poor. More critically, policies often serve as mere “reference points,” and businesses frequently encounter unexpected bureaucratic obstacles in practice. This naturally deters foreign investors or leads to losses during operations.
In 2023, Elon Musk promised Modi an expansion of Tesla’s electric vehicle factory and Starlink investments, but the factory plans remain in the planning stage to this day. This stands in stark contrast to Tesla’s investments in China.
Taiwanese semiconductor companies have been even more cautious in India. Chip manufacturers are only willing to provide technology licensing to the Tata Group, refusing to take on the responsibilities of building factories, operations, or securing orders. This reflects Taiwan’s view of India as a risky investment; many companies had previously suffered losses due to India’s rising labor rights awareness.
Apple’s supply chain in India, while relatively comprehensive and expanding annually, faces challenges including lower production yields compared to its Chinese and Vietnamese facilities, inadequate infrastructure, and an overly complex bureaucracy.
Chinese companies, which eagerly invested in India during its early development, suffered even greater losses. After the 2020 Sino-Indian border clash soured bilateral relations, Chinese businesses found it nearly impossible to operate in India, eventually withdrawing en masse.
Interestingly, the deterioration of Sino-Indian relations and the exodus of Chinese capital paradoxically increased India’s trade dependence on China.
In 2020, Sino-Indian trade totaled $88.7 billion, with China enjoying a trade surplus of $45.8 billion. By 2024, trade reached $118.4 billion, with China’s surplus rising to $85 billion.
India’s growing trade reliance on China stems from expelling Chinese firms in key industries. While these companies could have supplied goods locally, their absence has forced India to turn to China for imports of these products.
Driving away foreign capital or disappointing investors has harmed India by reducing jobs, stunting local business competitiveness, and widening trade deficits. It was only after Modi’s electoral setback that he truly recognized the importance of Sino-Indian relations.
The peak of India’s stock market coincided with the 2023 U.S.-India leadership summit but began declining in 2024. By October that year, foreign investors had withdrawn a cumulative $29 billion—a period that also overlapped with the Sino-Indian “reconciliation summit” in Kazan. This was no coincidence but rather an observable indicator of geopolitical trends.
It must be emphasized that while the U.S. has increased investment in India and become its second-largest trade partner, from a manufacturing perspective, China’s complete industrial system can supply all the components and finished goods India needs. In contrast, much of U.S. capital flows into India’s stock market, lacking productive value.
This situation has led to scaled-back technological cooperation commitments from the Biden administration toward India. Whether in space, AI, or quantum technologies—the most fiercely contested domains in U.S.-China competition—India has strategically avoided aligning exclusively with either power. Instead, it positions itself to extract benefits from both, enabling simultaneous access to partial technology transfers and substantial investments when Washington and Beijing compete to establish global technical standards.
Reopening the door to China is inevitable for India. Beyond Chinese capital, technical talent from China can directly aid India’s industrial upgrades. A clear example is the JSW Group’s acquisition of a stake in MG Motors from China’s SAIC Motor, a deal that facilitates the introduction of Chinese technicians to India to develop its electric vehicle industry.
Sino-Indian trade data reveals why Xi Jinping has been willing to tolerate Modi’s pro-U.S. stance. While security concerns remain significant, as two simultaneously rising powers, China and India are highly unlikely to go to war and will likely exercise mutual restraint due to economic imperatives.
China assesses that the “elephant” may venture eastward, but not too far, and will inevitably pivot northward in due course.
Blind Spot in the Indo-Pacific Strategy
In fact, while the Biden administration placed India at the core of its “Indo-Pacific Strategy,” India’s military budget as a percentage of GDP has steadily declined. In 2020, during the Sino-Indian border clash, it was 2.9%; by 2024, it had fallen to 1.89%.
In contrast, Japan, a U.S. treaty ally, has seen its military budget as a percentage of GDP rise. This highlights India’s “non-aligned” stance as an advantage, offering greater diplomatic flexibility. When the U.S. leans toward isolationism, India’s hedging space far exceeds that of America’s treaty allies.
It’s well-known that Trump’s tariff policies don’t distinguish between friend and foe but are based on comprehensive, dynamic calculations of interest. This prompts nations targeted by Washington to adjust their relations with China to offset potential U.S.-induced losses. Thus, while Trump himself isn’t the driving force behind warming China-India relations, he has inadvertently become a cheerleader encouraging Eastern powers to find common ground.
In February, Trump met with Modi at the White House. Beyond tariffs, the U.S. presented India with another dilemma: the sale of F-35 fighter jets and a $200 billion military order over 10 years. For India, this proposal poses three challenges: How long will it take from order to delivery? Does direct importation, rather than co-production in India, contradict the “Make in India” strategy? Does the incompatibility between US-made and Russian-made weapons in terms of operation and maintenance constrain the flexibility of India’s arms procurement strategy?
The issue is highly complex. The most immediate challenge lies in the F-35’s stealth capabilities, which depend on rare earth elements—materials predominantly controlled by China and now subject to export restrictions due to U.S.-China tensions. This creates uncertainty in U.S. delivery timelines and effectively prevents India from significantly distancing itself from Russia and China.
Of course, China and India view each other as competitors and won’t form a “back-to-back” alliance like China and Russia. However, it’s certain that the U.S. “Indo-Pacific Strategy” will lose traction over the next four years.
Rebuilding trust will take time and won’t be smooth, but Trump will accelerate Sino-Indian cooperation.
