NICHOLAS SHUBITZ: India is winning the trade war between the US and China

As geopolitical tensions rise, Brics member state India has leveraged its political neutrality, expertly striking a balance between East and West. New Delhi has managed to enhance its economic ties with Russia despite pressure to join Western sanctions, and has successfully presented investment in India as the perfect solution to fears in Washington of an overreliance on Chinese supply chains.     

Though former US president Donald Trump fired the first salvos of the trade war, President Joe Biden has doubled down on his predecessor’s desire to curtail a rampant US trade deficit with China. Attempts at reducing it have since evolved into a broader set of objectives, which include reducing US dependence on Chinese supply chains and counteracting China’s technological advancement, especially with respect to advanced semiconductors. 

According to the Australian Strategic Policy Institute, China has already surpassed the West in most key technological areas, leading in 37 out 44 analysed sectors from artificial intelligence to hypersonic missiles. Combined with its dominance in the production of green energy technologies such as solar panels and electric vehicles, the US increasingly views China as its major strategic rival.     

But the US still has certain advantages in areas such as chipmaking, vaccines and quantum computing, which it hopes to retain. To this effect Biden recently signed an executive order limiting US investments in certain Chinese tech companies and has already pressured allies such as the Netherlands and Japan to restrict exports of some chipmaking equipment to China.  

Beijing has responded with measures of its own, following through on a threat to limit exports of certain rare earth metals crucial for the production of chips and military equipment. These issues are unlikely to be resolved anytime soon, with tensions over increased US diplomatic engagement with Taiwan adding a security dimension, increasing the likelihood of further tit-for-tat trade restrictions.  

This is where India comes in. Apple has already increased its footprint in the country after its Chinese output declined due to lockdown restrictions, and following a recent visit to Washington by Prime Minister Narendra Modi. US military equipment such as F414 jet engines will soon be manufactured in India. It already collaborates with Russia to produce Kalashnikov assault rifles for the Indian military at a factory in Uttar Pradesh, which shows just how adept New Delhi has been at playing both sides. 

Balancing act   

India is the most populous and fastest-growing major economy in the world, and has successfully leveraged its reputation as the world’s largest democracy to improve business ties with the US. This improvement in relations with Washington (which have not been historically strong due to long-standing US support for Pakistan) has been against a backdrop of increased Indian co-operation with Russia.  

Russia is a traditional ally and major weapons supplier to India. When it invaded Ukraine New Delhi remained strictly neutral and actually increased trade with Russia, which is now India’s largest oil supplier, overtaking Iraq and Saudi Arabia. That Modi has managed to improve India’s ties with the US while advancing relations with Russia has been a masterstroke of international diplomacy.  

India has also made great strides in positioning itself as the voice of the Global South, calling for major reform of international institutions such as the IMF and the UN. It proposed the founding of the Brics’ New Development Bank and has found widespread support for calls to reform the UN Security Council, with political leaders from Turkey, Malaysia, SA and even UK foreign secretary James Cleverly all agreeing that India should be made a permanent member. 

Additionally, India has been one of the most active Brics nations in advancing the use of domestic currencies for bilateral trade. India has agreements to trade in local currencies with a number of countries, including Russia, Iran, the United Arab Emirates and Indonesia, and recently reached out to the Reserve Bank in SA with a similar proposal as it seeks to internationalise the rupee.  

While China has been somewhat tentative in terms of positioning its currency as a global reserve, having enjoyed a hugely competitive advantage in a financial system based on a strong dollar, India appears eager to have begun the process of internationalising the rupee while it industrialises its economy. China is unusual in this respect as the Portuguese, Spanish, Dutch, French, British and Americans all enjoyed reserve currency status when they were the world’s dominant trade powers.    

India is clearly thinking ahead. As such, an expanded Brics bloc will remain an important platform for India as it looks to deepen ties with other emerging market economies in Africa and the Middle East to boost trade and secure long-term access to crucial energy resources in light of increased Chinese influence in these energy-rich regions. This is already apparent with respect to India’s warm relations with Iran, another country the US considers hostile to its interests.  

Healthy ties with China 

While increased US investment is good for India, it is important to acknowledge that China and the US remain each other’s largest trade partners and there are therefore potential limits to how many restrictions can be applied before they become self-defeating. Multiple political and business leaders from the US have visited China in recent months in an attempt to repair US-China relations, and Chinese solar panels and battery manufacturing will remain crucial to Biden’s green energy agenda. 

Maintaining good ties with China will remain important for India, another benefit of the country’s Brics and Shanghai Co-operation Organisation memberships. Despite border disputes, Modi has maintained warm relations with China, with India-China bilateral trade already in excess of $130bn per annum and growing. Despite increased competition for foreign investment, the two nations continue to co-operate productively in these multilateral formats.       

India’s foreign policy achievements in recent years have been remarkable. While SA has been walking on eggshells trying to navigate its nonaligned stance, India has benefited from the intense rivalry between the US and China as Washington looks to counteract the growing alliance between Moscow and Beijing. India has taken advantage of the situation, positioning itself as a leader of the Global South while managing to improve its economic ties with Russia, China, Iran and the US, all at the same time.  

• Shubitz is an independent Brics analyst.