No president has felt the sting of US President Donald Trump’s tax war as strongly as India’s Prime Minister Narendra Modi, despite the fact that no other leader has. Caught in a high-stakes political connect, India is grappling with an philosophical problem: balancing its crucial economic ties with China against the beauty of the American business.
The Trump administration imposed a 26 % “reciprocal” tax on American goods on April 2, 2025, putting New Delhi in tense negotiations to gain access to the country’s largest export location, the US.
India’s response has betrayed a shocking respect, as evidenced by the rapid and significant trade work cuts on Harley-Davidson scooters and American-made whiskey liquor amid a large pledge  to lift down trade barriers. New Delhi has furthermore announced plans to buy more US strength and protection products in a bid to appease Trump.
The Trump administration has used a 90-day relief on the tariffs to pressure India into a more comprehensive National strategy to isolate China financially and carefully. US Vice President JD Vance made a notable four-day visit to Delhi on April 22 as part of this political unpleasant.
Ostensibly a family affair—Vance, with his Indian-origin wife and children, framed the trip as a nod to his Sasural ( “in-laws” ) and his kids ‘” Nana-Nani” ( maternal grandparents ) —the visit’s true purpose is to tighten the screws on India and secure its alignment against Beijing.
Trump uses the rod of tariffs to fudge Modi’s wishes in his second term, replacing the vegetable of American investment moving from China to India in his first.
Ajay Seth, the secretary of economic affairs, claimed this week that the” first order” hit from 26 % tariffs on India could reduce GDP by between 0.2 % and 0.5 %, which he said was” not a significant impact.” However, underscoring the urgency of the situation, New Delhi planned to transport both its chief trade communicator and finance secretary to Washington this week before the terrible Kashmir problems.
India’s plight is rooted in its divided financial fact. To produce ultimate products for trade, especially to the US, its business center, which is frequently just an “assembly line,” relies heavily on Chinese transitional goods, raw materials, funds equipment, technology, and investment.
In 2024-25, China accounted for over 14 % of India’s full international trade, while India’s goods contributed a simple 1.9 % to China’s international trade, highlighting a striking imbalance. India can import Chinese components, arrange them, and trade finished goods to the US now because a 35 % value addition there qualifies as enough for a “rules of origin” certificate.
Nevertheless, this type makes India susceptible to a proportion readjustment. Tilting toward the US challenges Chinese retribution that could drown its production ranges, leaning toward China threatens to renounce US market access.
India’s fundamental problem is this. Beijing may impose a bombardment of punitive measures, both explicit and implicit, that would deteriorate India’s economic trajectory, erode its security, and weaken its regional influence, much like it did in 2020 in a punitive response to the tensions in the Himalayas.
China’s most immediate tool would be business adjustment, exploiting India’s$ 100 billion deal gap in 2024-25. India’s exposure to Chinese and allied markets may be restricted by Beijing’s imposing steep tariffs or non-tariff obstacles, such as stringent quality checks, on American exports like agro products, textiles, and leather goods.
China might restrict exports of important inputs, including smartphone components, pharmaceutical precursors ( 70 % of India’s supply ), and industrial machinery, even more severely. In 2020, when India tightened attention on Chinese opportunities, Beijing retaliated by blocking engineers ‘ and technicians ‘ visits and technology shipments, a methodology it may rise to even more damaging effect immediately.
Such restrictions would stifle India’s tightly bound smartphone, pharmaceutical, and solar energy sectors, which are all closely linked to Chinese supply chains. China could further skew the trade balance, shrinking India’s export revenues, by selectively lowering imports of Indian goods.
With China constituting over a third of India’s foreign trade, these measures could precipitate a severe economic contraction, hobbling India’s industrial ambitions and global market competitiveness.
China has another means of squeezing India with financial leverage. Beijing could stifle trade financing for Indian businesses by tightening payment terms, putting off processing, or restricting credit flow through Chinese banks with$ 3.24 trillion in foreign exchange reserves and significant influence in global finance. After India’s 2020 ban on Chinese apps, Chinese investors curtailed funding to Indian startups, a precedent that could expand to broader sectors.
China might halt investments in recently approved joint ventures like Vivo, Suzhou Inovance, and ZNShine if India’s US alignment is further strained, undermining India’s plans for manufacturing growth and technology transfer.
By putting Indian projects prioritizing them, China may have a more subtle impact on India’s access to multilateral financial institutions like the Asian Infrastructure Investment Bank or the New Development Bank. These financial chokeholds could starve India’s industrial and infrastructure initiatives, limiting its ability to scale up domestic production or diversify away from Chinese inputs.
China might target India’s nascent digital and defense sectors in the technological sphere. Chinese tech companies like Huawei and ZTE have a share of the power behind India’s 5G networks and smart city projects. Beijing could derail India’s digital infrastructure by restricting access or withholding technical support.
In a report from the Harvard Belfer Center for 2021, China’s dominance in semiconductors, 5G, quantum computing, and artificial intelligence was highlighted. India’s newly established semiconductor industry and defense manufacturing, which depend on Chinese inputs for advanced electronics, could be hampered by an embargo on semiconductors or high-tech components.
China could also complicate operations for its tech firms in India, halting solar panels or telecom equipment supplies. Such alterations would halt India’s advancement in technology and weaken its strategic abilities, particularly in defense systems that are crucial for battling regional threats.
An even greater existential risk is posed by China’s stranglehold on critical raw minerals ( CRMs) and rare earth elements ( REEs ). In 2023, India identified 30 critical minerals vital for electric vehicles ( EVs ), semiconductors, defense equipment, and renewable energy, including lithium, cobalt, gallium, titanium, graphite, silicon, bismuth, tellurium, and REEs like neodymium, praseodymium, dysprosium, and terbium.
India is the fifth-largest store in the world with 6.9 million metric tons of REE reserves, but its processing and refining capacity is inestimable. It imports 60 % of its REE imports from China, and over 40 % of its six CRMs, including graphite ( 42.4 % ), lithium ( 82 % ), silicon ( 76 % ), titanium ( 50 % ), and lithium ( 85.6 % ), lithium ( 82 % ), and titanium ( 50.6 % ) ) and lithium ( 42.4 % ) of those products. Beijing controls 87 % of global REE processing, 58 % of lithium refining and 68 % of silicon refining.
India’s plans for 30 % EV penetration by 2030, its semiconductor manufacturing plans, and its defense production, which rely on REEs for missiles, radar, and guidance systems, could be devastated by a Chinese export ban. India’s smartphone sector, which relies heavily on Chinese components, and its pharmaceutical sector, which relies on China for 70 % of its precursors, would experience severe shortages.
While India seeks alternatives through the Mineral Security Partnership and Australian partnerships, decoupling from China’s dominance could take decades. Thus, India’s industrial and strategic goals would suffer a terrible blow if an embargo were to be implemented.
China might use its diplomatic position to isolate India from the Shanghai Cooperation Organization (SCO ) and BRICS by portraying its US support as a betrayal of collective interests. In 2024, China’s foreign ministry condemned such alliances, and Beijing could rally SCO members like Pakistan and Russia to obstruct India’s initiatives.
China might strengthen ties with Brazil, South Africa, and other newly incorporated nations in BRICS , which would marginalize New Delhi. Regionally, Beijing could intensify Belt and Road Initiative projects in India’s neighbors—Nepal, Sri Lanka, Maldives, and Bangladesh—eroding India’s” Neighbourhood First” policy.
Chinese ambassador Chen Song emphasized BRI’s role in South Asia in 2023, signaling Beijing’s desire to encircle India. Such maneuvers would undermine India’s regional influence, isolate it diplomatically, and alienate it from its allies in the Global South, and make it appear as a Western proxy.
If India persists in antagonizing China, Beijing could escalate to hard measures. As seen in the 2020 Galwan clash, border tensions may rekindle with incursions in Ladakh or Arunachal Pradesh. China deployed 100 advanced rocket launchers along the Line of Actual Control in 2021, indicating its readiness to escalate.
Naval exercises in the Indian Ocean, leveraging ports like Gwadar, Hambantota and Chattogram, could challenge India’s maritime dominance. India’s telecom, energy, and banking sectors could be targeted by cyberattacks, such as the 2020 Mumbai power outage brought on by Chinese state-sponsored organizations, potentially suffocating its economy.
Proxy threats made by Pakistan or Myanmar, which are potentially armed by China, could put strain on India’s security apparatus on multiple fronts.
Soft power offers China a subtler tool to destabilize Modi’s domestic standing. A goodwill gesture was made in 2024 to allow Indian pilgrimages to begin at Tibet’s Kailash Mansarovar, a sacred site for Hindus, Jains, and Buddhists. These communities may react negatively to a new ban, putting strain on Modi’s political standing.
In Washington, India’s trade talks with the US this week will test Modi’s ability to navigate this minefield. Beijing clearly has the upper hand with its outsized role in India’s supply chains and minimal reliance on Indian trade.
Modi might have to balance the risks of defiance against the risks of dependence as a result of a mistake that could plunge India into economic turmoil, compromise its security, and weaken its reputation globally.
Bhim Bhurtel is on X at , @BhimBhurtel