US-China Talks – The question is; what will India now pivot towards?

The recent meeting between Trump and Xi is seen as a significant thawing of ice between two economic superpowers of the modern era. However, India would be concerned about the US and China getting too close to each other.

Is Trump marking a change in stance?

The recent meet between Xi and Trump in Beijing was a significant meeting between two economic superpowers. Incidentally, both have not seen eye to eye on most issues ranging from trade to Iran to Russia to Taiwan. Previous American presidents allowed the cold war between the US and China to run its natural course. Past presidents could never digest the fact that China continued to support Russia, purchased oil from Russia, and even lent support to countries like North Korea and Iran. In a sense, Trump has a different approach in that he looks at the relationship entirely from a transactional perspective.

Is Trump putting business interests over politics?

In a sense Trump is right. The US may be running a massive trade deficit with China, but it is Chinese products that are allowing the US to keep inflation low. From aircraft to mobile phones, American companies have been outsourcing these products from China for many years. However, few things had changed. China had been pursuing its independent political agenda, which was often at conflict with the US. Secondly, the COVID pandemic showed that the world was overly dependent on China for the supply chain. As China delayed its recovery, global supply chains ground to a halt. Now Trump looks to start afresh and strengthen relations between the US and China.

What it means for India?

The China Plus One policy adopted by most corporates globally had clearly benefited India. Big companies like Apple relied heavily on India for manufacturing iPhones. In the last few years, Apple has leaned heavily on India to manufacture mobile phones, making electronics one of India’s biggest export items. One can argue that such exports also had an import component, but India had started positioning itself as the factory to the world. What should worry India is that Trump has taken a massive business delegation with him to China and the obvious mandate appears to be how well the two countries can associate for better economics. That could hit India’s interests in the longer term.

What is, then, the mandate for India?

Would US-China proximity impact India’s interests? To an extent it would, if the big American companies decide to assign more business to China and less to India. After all, China still has the scale and the economies to outsource in a big way. The mandate for India is to stick to its core competency. For instance, India has a genuine advantage in specific industries like automobiles, specialty chemicals, generics, etc. In trying to be something for everyone, we risk ending up being nothing for anyone. Hence, the focus for India should be its core competency and build deeper moats. If that focus remains, then greater US-China proximity may not matter too much for India!