After years of tension along their contested border, India and China have taken tentative steps toward a diplomatic thaw, prompting questions as to whether closer cooperation between Asia’s two largest economies might reshape regional trade dynamics – potentially undermining US influence in the region.
Remarkable Change in Relations
Early this summer, signs of warming ties between India and China emerged when Prime Minister Narendra Modi met Chinese President Xi Jinping at a multilateral summit in Kazakhstan. Both leaders agreed to “reset relations” by expanding trade and cultural exchanges while discussing security disputes through dialogue.
It was an unexpected development. Relations between India and China had long been marred by border skirmishes, strategic mistrust and rising competition across South Asia and the Indo-Pacific. Yet analysts suggest that global economic realities – including rising energy costs, supply chain disruptions, U.S.-China trade frictions — may be prompting New Delhi and Beijing towards cooperation instead of competition.
Potential Trade Realignment Options
China remains India’s largest trading partner, with bilateral trade surpassing $135 billion in 2024. Despite political tensions, Chinese electronics, machinery, and industrial components remain highly sought-after in India; at the same time China relies on Indian pharmaceuticals, agricultural products, and IT services for trade purposes.
If the current conviviality translates into an economically meaningful partnership, trade volumes could increase significantly. New initiatives being discussed include joint manufacturing zones, digital payment integration, and cooperation on renewable energy projects.
“Even small improvements in India-China relations could radically transform Asia’s supply chains,” according to Anil Deshmukh, a Mumbai-based trade analyst. This would increase Asia’s economic independence while decreasing dependence on US markets.
Implications for the United States of America
Washington faces strategic hurdles from deeper India-China economic collaboration. Washington has pursued India as a potential counterbalance against Chinese influence for years, especially through Quad grouping (U.S., India, Japan and Australia).
Expanding New Delhi’s engagement with Beijing could thwart U.S. efforts to align Asian economies around its Indo-Pacific vision, according to experts. Furthermore, American industries could see reduced market share if India and China expand cross-border trade while lessening dependence on Western technologies and financial systems.
“Washington will need to proceed carefully,” according to Dr. Laura Kim of Brookings Institution’s Policy Research Unit. India wants strategic autonomy over alignment. If too much pressure comes from Washington on New Delhi from Beijing economically speaking, New Delhi may lean closer.
Obstacles and Caution
While signs are encouraging, major obstacles remain. Territorial disputes in Ladakh and Arunachal Pradesh remain unresolved, with both countries wary of each other’s military presence in the Himalayas. Furthermore, India has historically been wary about granting Chinese technology firms more access to its markets due to security considerations.
Indian officials have stressed that improved relations with China won’t come at the expense of other strategic alliances. “Our foreign policy is guided by national interests and balanced engagement,” an Indian Foreign Ministry spokesperson noted this week.
Outlook
Whether the recent bonhomie between China and India becomes a turning point or temporary respite will depend on their respective governments’ abilities to balance economic cooperation with long-held mistrust. Already it has provoked debate about whether Asia’s two giants, working together, could tilt regional trade away from U.S. dominance.
As Dr. Kim noted, should India and China manage to maintain even limited cooperation, the real loser may be the United States as its influence in shaping Asia’s economic order decreases.