Uncle Sam or Mr Xi? Why India must loosen itself from US embrace and look at China options more

India is in a bind when it comes to trade and business with both the US and China. Currently, the US is a source of both technology and export markets, while China is a source of critical imports and border tensions. There is no export market for India worth speaking about. As yet. 

Put simply, what happens is that the large trade deficits with China ($112 billion in fiscal 2025-26) get partly evened out by our trade and services surpluses with the US (trade surplus of $34 bn in 2025-26, $4-5 bn in services). India is another conduit through which China exports goods to the US.

Now that it is becoming clear that neither the US nor China will support our rise economically - both are important for us, but both are threats too - we will have to make a choice in order to rebalance between the two at some point. We need the US for our services, critical technology, and goods exports, but we also need Chinese investment in India if we want a more robust manufacturing base. Without Chinese investment in Indian manufacturing, we are unlikely to find the scale needed to grow our manufacturing’s share in GDP.

Like most Indians, I have also been more wary about China than the US, but (mea culpa), I am beginning to believe that China may be more important to our future (along with Europe, Japan, Australia, Africa, Latin America and ASEAN) than America. 

The pros and cons of engaging with China are the following (the cons first):

One, China is an ever-present security threat to India, both on the borders and in other less visible spheres like cyber security or information warfare. The fact that China considers us a potential rival in Asia means they will never let up on the border, despite current optics of an easing. 

Two, our dependence on Chinese imports and sub-assemblies is enormous. Without Chinese imports, all our export efforts would peter out. We can’t allow this dependency to increase. This is a clear vulnerability we have to fix.

Three, larger Chinese investments will impact our own infrastructure players since it can undercut them enormously. There is also the possibility of our infrastructure incurring Chinese debts - which other countries have found to be costly.

We could list a few more cons, but these would be the main ones.

The pros of greater Chinese trade engagement are the following:

One, more Chinese investment in Indian manufacturing will speed up the learning curve of Indian manufacturing over a period. This is vital for our own jobs growth and scale-up in manufacturing. One Apple is not good enough. We need the Chinese to make India a production base without sacrificing our security interests.

Two, pure financial and technology investment in Indian infrastructure by Chinese entities (with minimal equity) will partially make up for the general reluctance of western capital to invest deep in India of late. China is the world’s largest repository of surplus capital outside the US, and India has one of the world’s largest trade deficits. We have a negative balance of trade with nine of our 10 top trading partners. China is thus a marriage of convenience waiting to happen. The same, of course, applies to Russian capital. Russia’s growing surpluses from oil sales to us are still to be put to good use, thanks to the Ukraine war. At some point, Russia too needs to invest in India, both in defence and economic projects.

Three, Chinese investments meant purely for exports may find Indian labour costs enticing, especially if they are housed in export zones. Manufacturing bases meant purely for re-export to China may also make some sense, but this would require China to first start prioritising domestic consumption over investment. A reverse skew has persisted for decades. China has to realise that its own domestic consumption needs to play a larger role in its growth than just exports. The world cannot handle more Chinese exports than it already does now.

Four, at some point, when Chinese investments in India become an important source of Chinese interest in our economic stability, maybe - just maybe - they may be more inclined to stop pressuring us on the border. But we should have no illusions on this score.

Five, countries that grow fastest tend to trade more within their own regions first. As an Asian country, India should be looking at growing more trade with its neighbours, including China, but on a more balanced basis.

Six, unlike the US and Europe, China will not think it has to constantly needle us about human rights or democracy. The holier-than-thou west is simply not going to let us be. 

Why then do most Indian observers and commentators think that the US is more important to us than China? 

There are several reasons why Indians feel more comfortable aligning with the US, warts and all, and the US is taking advantage of this. China does too, but we have to choose between them based on our priorities, and not our inherent emotional biases. Here are the main reasons.

One, the pro-US bias comes from the dollar-rupee rate which has only gone in one direction so far - downwards. When Indians see the US, one dollar translates to 96 rupees (now). This psychological factor tells us that working for dollars is worth more than working for the rupee, never mind the purchasing power of the two currencies. Hence, we conclude (not unreasonably) that the US ought to be our destination for progress. We send our kids to US and European colleges, though high costs are now making a Chinese (or Ukrainian or Iranian) education more affordable - with attendant risks of the same students becoming Chinese sleeper cells in India when they return. But the risks of Indians becoming more aligned to the US Deep State are greater than Indians spying for the Chinese - it is easier to spot the latter.

Two, the US Deep State has cultivated Indian politicians and bureaucrats and businessmen by quietly giving them easy access and subsidies for US education and jobs. This means the Indian Deep State is deeply compromised when it comes to protecting national interests. Just as we worry about Indians (especially Communists) who have spent time in China becoming more aligned to Chinese interests, we should worry even more about the long-term emotional investments we have made in a US friendship. Indian babus and netas must henceforth be asked to disclose their conflicts of interest when it comes to the US, whether it is through their immediate relatives finding jobs or scholarships in the US, or being compromised in some other way. The idea of conflicts of interest must now be addressed as a security issue.

Three, as the ultimate buyer of Indian goods and services till recently, it made sense to put more and more of our business and political eggs in the US basket. We are now facing the downside as Donald Trump weaponises tariffs and arm-twists us repeatedly. Also, with artificial intelligence damaging the value of our labour-arbitrage-based software services, the US market will increasingly become less valuable to us, though inertia makes us believe the opposite.

Four, we are still a colonised people. When the British left, American academics and institutions took over the task of keeping our minds colonised. Which is why the deepest and most colonised versions of our history and caste systems are developed and bandied about in America, and when Indians migrate to the US for personal and economic benefit, we have to accept this as a condition for benefiting from their capitalist system. 

Five, the 1962 war defeat at China’s hands scarred many Indians emotionally, and the repeated pressure on our borders, both the Chinese salami-slicing policy and the Galwan clashes, has reinforced this bias. That fact that we must always be on guard against other Chinese threats has to be separated from our need for using Chinese advantages to build our economy. The two factors must be addressed in separate - though indirectly connected - compartments.

Six, after the Pokharan blasts of 1998, and especially after the Jaswant Singh-Strobe Talbot talks and the Indio-US nuclear deal of the Manmohan Singh years, we had wrongly come to believe that the US will always need us as a bulwark against China. That is not true anymore as the US is beginning to accommodate the Chinese as near-equals in a G2 strategic embrace. We need both to grow, and we need to be cautious about too close an embrace with either.

Seven, we are an emotional people. We tend to lump people as friends or enemies too soon, and in a binary fashion. We are manic-depressive: we tend to move from emotional highs to lows very quickly based on the latest incident involving China or the US. Our policy-makers must learn to distance themselves from the emotional outrage of the day and work on long-term strategic options and choices. 

The takeout is this: we don’t have to suddenly go back to the Indi-Chini bhai bhai state of Nehruvian India. But we certainly must get out of our obsession with the US as the obvious route to progress and growth - and tell our people that there is no nirvana for most people in Uncle Sam’s embrace. We need both the US and China for our growth, but we must decouple partially from the US, and look at our Chinese options more closely. We have to understand China more, engage with it more, and optimise our relationship.

Historically, India and China have never been in conflict because the Himalayas stood in-between, and the intellectual and spiritual flows were from India to China and not the other way around. China’s annexation of Tibet in the 1950s changed all that. Now that the Himalayas are no longer a barrier to hostile action, we have to be both extremely cautious and open - open to the direction of knowledge flowing from China to India without losing our own ground.

This is a huge change even for me, for I have been a China hawk for as long as I can remember. But the world has changed, and we must change too.