The time is right for a reset of India’s trade ties with China

As part of a new doctrine spelt out by the Prime Minister vis-a-vis Islamabad in his address to the nation on Monday, he made it clear that India’s anti-terror action was merely on pause and Operation Sindoor had set the “new normal" of Indian policy. Terror planners and their state sponsors would be treated alike. Also, the country would not tolerate nuclear blackmail, not let trade and terror go together, and will talk with Pakistan only about terrorism and the part of Kashmir it occupies. 

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The last assertion clears up any doubt over the terms of a ceasefire with Pakistan after last week’s armed hostilities. Voices from the US on potential third-party mediation, thus, are best treated as just that—voices, that’s all.

Meanwhile, the 90-day suspension of mutual tariffs by the US and China as they revive trade talks has surprised observers, given their recent escalation in trade warfare. Recall, the US had ratcheted up barriers for Chinese shipments even as it rolled back country-specific tariffs on others. China had retaliated hike for hike and begun to weaponize its rare-earth heft by using export curbs. 

Apart from the scare of what a trade snap-off may have meant for the US economy, as relayed by its financial market jitters, the prospect of key-mineral scarcity may have played a role in America’s softened stance. The US has agreed to cut import duties on most Chinese goods to 30% from 145%, with China expected to reduce its own tariffs to 10% from 125%. Beijing has reportedly also pledged to lift its mineral embargo. 

Also Read: Nitin Pai: Operation Sindoor sets a new normal for India’s strategy

In all, it is now clear that the US does not intend to decouple its economy from China’s, but wants a better trade balance with it. Although it’s unclear if the two can eventually strike a bargain that sticks, the likelihood of a sharp and swift realignment in world trade has receded for now. 

While supply chain disruptions could still open opportunities for exporters in other countries, today’s state of play is a reminder: Export headway is best made on the back of one’s own competitiveness, not the barriers of others that may turn on a dime. Crucially, the economic logic of trade can—and often does—prevail over distortions.

New Delhi may need to recalibrate its position. Let Pakistan not distract us from taking a nuanced approach to China, whose power cannot be wished away. No doubt, Beijing has been acting as an adversary in the face of India’s rise. The past week revealed Beijing’s tilt towards Islamabad, even if its broad statements were cloaked in neutrality, amid speculation over combat back-up given to Pakistan. 

Also Read: How Trumpian volatility is forcing policy changes in China

So long as we do not suspect an active role on China’s part, this is a good time for a dialogue with Beijing. Like the US, we could push for a trade reset with it for a better balance of two-way cargo. 

We also need ways to benefit from its low-cost clean-tech and other advancements. Joint ventures that stay firmly in Indian control could aid the safe absorption of technology, even as we seek greater market access. Conceivably, the value that China places on its commercial ties with India could give us some leverage over it in the geo-strategic sphere at some point.