India’s Market Appeal Dips as US-China Relations Shift—What’s Next?

Prime Minister Narendra Modi in the presence of US President Donald Trump, at the White House in Washington, DC on February 13.
| Photo Credit: ANI

In the last many weeks, several leaders have called the times we live in “the end of an era”. They are pointing to the shape and form geopolitics took from the end of the Cold War until roughly the global financial crisis of 2008, characterised by a high level of global cooperation, economic integration, and the flourishing of multilateral institutions like the UN. All this was actively encouraged and fostered by the US, which had two clear economic and strategic rivals: China and Russia.

In a very short period into his role, US President Donald Trump and his self-proclaimed leader of the Department of Government Efficiency, Elon Musk, have upended many of those givens. The mood is grim but the approach for all nations is tradesman-like. Appease the economic and military and superpower that is America, focus on your own economy and national interest first, and bend—if you cannot break—the existing international rules-based order.

While much of the focus has been on the volte face in America’s approach to Russia, that is not going to be the one India will need to keep its eye on. It is China. From an invitation to Chinese President Xi Jinping to attend Trump’s inauguration to the very public show of grace to TikTok by giving a 75-day extension to find a buyer, and a resumption of service less than 24 hours later on Inauguration Day with a message of thanks to Trump—it all points to a relationship that may now have much of a transactional tone to dealings.

Impact of US-China thaw on India

Why should this matter to India? For one, the economics of it will.

India’s trade map has seen many changes under the current Narendra Modi government. For energy resources, the share sourced from Russia has gone from about 1 per cent in 2017 to almost 30 per cent in 2024. Compare that with India’s share of trade with the US and key European nations. India’s exports of electronics to both these regions for instance, rose from under 40 per cent in 2017 to close to 65 per cent in 2024.

Also Read | Will Trump break world’s faith in US dollar?

But the truly dramatic change is in India’s trade with China. As data shows, imports from China have increased in value by about 6 per cent a year on average between 2017 and 2023. The bulk of these imports include chemicals including pharmaceuticals but also microprocessors, memory chips, and semiconductor manufacturing equipment. India’s imports of these crucial items skyrocketed between 2017 and 2023, from a combined import value of less than $500 million to $5 billion—a tenfold jump. This has ramifications for India’s trade with other regions like US and Europe because it is now increasingly dependent on Chinese imports for the finished goods that then head to other markets. China on the other hand faces no such vulnerability; the dollar value of India’s exports to China fell by 2 per cent a year on average between 2017 and 2023.

In an environment of tariff wars on the one hand and a potential thawing of US-China relations on the other, how much negotiating power does India have if both the US and China set down harsher terms of trade? Closer home, India is clearly struggling with off-colour growth and sluggish domestic demand, this may be a lethal blow to India’s economy at a time when it can least afford it.

The second reason this should matter is the constant diet of “India versus China” that is fed to the nation both domestically and internationally. It is still unclear what Prime Minister Modi’s recent visit to the US has yielded, apart from a rather awkward offer from President Trump to mediate an end to “border skirmishes” with China.  But it was a far from ideal look when, only days after that visit, two American military aircraft carried over 200 Indian men, women, minors, and infants back to India. The deportees were handcuffed and shackled—much the same way a group had been repatriated earlier in February. For all the hugs, handshakes, and stadium spectacles, it is clear India will receive no special treatment from the Trump 2.0 administration.

Fall in India’s market appeal

It is not just the government. In the last few years, even as the Indian economy has been revealing sores, its stock market has always been held up as the best barometer of both success and sentiment. The latest Bank of America fund manager survey captures how fund managers overseeing close to $500 billion in assets are mapping their preferences. Indian equity markets are now the second-least favoured stock market in Asia. From being a clear favourite in the Asia pack, the survey reveals that the number of fund managers now going “underweight” on the market has jumped from 10 per cent in January to 19 per cent the following month. China, that was ranked the least-favoured market in the January survey, has made a swift comeback and is now pitted as the third-most favoured market in Asia.

Since September 2024, the Chinese government announced it was taking a slew of fiscal and monetary policy announcements to consolidate national growth at around 5 per cent in 2024 and 2025. Worries over the strength, sustainability, and credibility of China’s economic model and statistical machinery remain. But the recent unveiling of DeepSeek, a Chinese artificial intelligence startup that topped app download charts and caused US tech stocks to sink, has shown the world that China is very much in the game.

Also Read | Where is India’s DeepSeek?

From a geopolitical approach, China has always wanted as wide a span of influence as the US. As the US withdraws from traditional ties, China may step into that space with the offer of both hard infrastructure like its Belt and Road Initiative and cutting edge machine learning technology in the form of products like DeepSeek.

India has so far attempted to be friendly with all, wooing Russia, the US, and despite its dismal track record at home, Muslim-majority nations constituting the Arab world. However, the last few weeks have shown the usual rules of the game do not apply anymore. In fact, for a US leader who has scant regard for historical relations with allies such as the EU, this new “table stakes” approach to international relations may suit China rather well, where existing hierarchies and alliances are upended and nations partner solely on the basis of mutual benefit. What does India bring to the table?

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.