India braces against the global trade storm, recalibrating its diplomacy even as China, battered by the US tariff offensive, extends an olive branch to New Delhi. A report by Gopal Misra
With the depletion of the legendary gold reserves at Fort Knox, the challenge facing the US dollar grows with each passing day. It remains highly doubtful whether President Donald Trump’s high-tariff regime can truly rescue the once-formidable American dollar or redirect its dwindling resources towards reigniting economic growth.
Meanwhile, the ongoing rhetoric surrounding these tariffs—conceived and imposed by the well-meaning but arguably misguided officials in the US Treasury—has done little to unsettle wealth managers across continents. They know that the soul of the American dollar is being carefully safeguarded in the lockers of Beijing.
China holds approximately $760.8 billion in U.S. Treasury securities as of January 2025, making it the second-largest foreign holder after Japan . This substantial investment underscores China’s vested interest in the stability of the U.S. dollar, arguably more than some naïve policymakers in Washington. Interestingly, this truth is well understood among Washington’s close allies in Europe, who are preparing to realign their financial interests with Beijing and New Delhi. They know full well that amid mounting debt and the need to reschedule securities redemptions, the U.S. debt-to-GDP ratio had climbed to 123% by the end of 2024.
In India, economists as well as the corporate world appear convinced that despite being a much smaller economy relative to major global players, New Delhi can weather the tsunami—albeit with some setbacks—being witnessed following the unleashing of the tariff war by the United States. It is doubtful, according to many economists in New Delhi, that the Trump administration did its homework before initiating this worldwide confrontation.
There is a growing apprehension globally that while Trump’s predecessor and former US President Joe Biden, had deliberately kept Beijing in good humour—perhaps even promising full control to the Dragon in Eurasia as a spin-off of the Russia-Ukraine war—Trump’s decision to embark upon this confrontation appears somewhat amusing. It is well known that the major players in the world market are China, Japan, and the European Union.
In the case of India, the impact of this confrontation may not be very significant, especially with present India-US trade being much lower—if not insignificant—when compared with China, the European Union, and Canada. While the economy may absorb some severe shocks, it is still expected to weather the storm better than the Americas and other US allies in Asia. It cannot be denied, however, that with the 26 per cent tariff being imposed on Indian goods, our exports might suffer or face an immediate decline.
It appears that new alliances are being worked out, if the recent statement of former UK Treasury minister Jim O’Neill is anything to go by. He has stated that closer trade ties with Beijing should be part of a realignment that is inevitable following Trump’s “kamikaze” tariff initiative. Lord O’Neill, a former Goldman Sachs chief economist, said that G7 countries could take the lead in this, but that India and China should be included as well.
He further stated, “It’s important to realise that the rest of the G7, except the US, collectively are the same size as the United States. And I would have thought a very sensible thing to be doing is having a serious conversation with the other members about actually lowering trade barriers between ourselves.”
China, in fact, sends more goods to the EU than to the US, and this export shift away from the US has accelerated since Trump’s first period in the White House—even when the Covid-related surge in Chinese exports is discounted. China now sends about USD 440 billion worth of goods to the US, while its exports to the EU’s 27 members are close to USD 580 billion.
During these tumultuous developments in the world economy, India appears to be preparing for a more effective response to the situation. This, however, will depend on how much Prime Minister Narendra Modi can infuse fresh energy within his government by replacing underperformers. A hint of this possibility emerged during his recent visit to Nagpur, where he reportedly asked the RSS bigwigs to reorient themselves to face new realities—both within the country and on the international stage. This statement, however, was not elaborated upon for the national media, which continues to follow the familiar guidelines from Modi’s earlier tenures—such as routinely glorifying India’s past or promoting the ‘Sanatani’ narrative with Modi as its central figure.
Modi 3.0 with an N2 twist: There is a general consensus among New Delhi’s political circles that Prime Minister Narendra Modi, with his refurbished secular political image, is likely to play a far more effective role by focusing on issues confronting the contemporary world—and India in particular—rather than being associated with an obscure past. The setback to India’s diplomatic outreach in the US is being attributed to EAM S. Jaishankar, the former civil servant now elevated to a political role in the external affairs ministry. Yet, Modi is being advised to continue appointing civil servants as cabinet ministers, as they are not only compliant but also unlikely to challenge his political position within the ruling BJP, now reduced to just a coalition partner in the present government.
It is also being said that in his new avatar, Modi, who holds the country’s highest executive office, is expected to be significantly more assertive than in his previous tenures as BJP leader. He currently heads an NDA alliance that is being quietly assisted by two seasoned political stalwarts: Bihar’s Chief Minister Nitish Kumar, and Andhra Pradesh Chief Minister Chandrababu Naidu. Nitish Kumar, fondly called ‘Sushashan Babu’ or symbol of good governance, has withstood the challenges of the complex Muslim-Yadav social alliance in his caste-sensitive state. Similarly, Naidu, who has returned to power in a fragmented Andhra Pradesh—now divided between coastal Andhra and Telangana—is keenly aware of former Congress President Sonia Gandhi’s politically fraught move that had earlier led to the state’s bifurcation.
According to well-known political leaders of the Deccan, Naidu—who remains wary of Sonia—is keen that Modi be re-launched as Modi 3.0 with an N2 tag, signalling a secular orientation. The N2 symbolises the support of Nitish and Naidu now being extended to Modi. It is estimated that this alignment could enable Modi to reassert his political presence in South India, while also garnering support from the Telugu diaspora in the United States, many of whom hold key positions in the Trump administration.
When diplomatic spin backfired: India witnessed yet another diplomatic faux pas within 24 hours of talks between External Affairs Minister S. Jaishankar and US Secretary of State Marco Rubio on April 7, during which the two agreed that a bilateral trade agreement would soon be signed. What followed, however, was the US administration’s decision to impose 26 per cent reciprocal tariffs on Indian goods—effective April 9.
It is believed that, perhaps in a somewhat juvenile attempt to showcase Jaishankar’s proximity to Rubio—something many in South Block view as unnecessary—the Indian foreign office camouflaged a casual exchange as a serious diplomatic engagement. A former Indian diplomat told this author that ever since Jaishankar’s failure to secure a White House invitation for Prime Minister Narendra Modi during Trump’s inauguration on January 20, a series of unremarkable or irrelevant updates have been selectively highlighted in the media in an effort to rebuild his image.
Earlier, Indian diplomacy had come under criticism when the diplomatic mission in Washington failed to ensure that illegal Indian migrants being repatriated were spared handcuffing. Instead, Jaishankar told the Rajya Sabha that the US authorities were merely following their ‘standard operating procedure’ (SOP). A senior foreign affairs scholar was recently overheard remarking, somewhat wryly, that “our gentleman foreign minister may soon be justifying the steep tariff hike on Indian goods as another SOP of the US administration.” The scholar added that India must recognise that, with household incomes in the US seeing a sudden drop, there may simply be fewer buyers for Indian products.
Washington’s missteps catch up: Classical economists interpret the ongoing economic crisis in the United States as one that is gradually engulfing much of the world. They believe its roots lie in the unnecessary wars waged across various regions in the post-Soviet era, particularly after the 1990s. They further argue that, rather than addressing the grassroots challenges of the American economy, successive administrations outsourced much of the country’s manufacturing to China, while relying on defence-industrial power to fuel conflicts across continents.
According to 2021 data, the United States imported 14.6 per cent of its total goods from China, amounting to USD 413.7 billion. It is yet to be disclosed how much US companies export to other markets.
With large-scale layoffs within the federal government and institutions funded by federal resources, the purchasing power of American consumers has declined significantly. Their hesitation to buy non-essential goods, especially at higher prices, is understandable. The Trump tariffs are set to decrease by an average of 1.9 per cent, resulting in an average tax hike of over USD 1,900 per US household in 2025.
As of April 4, China, Canada, and the European Union have announced or imposed retaliatory tariffs affecting a combined USD 330 billion of US exports. These imposed and threatened measures are projected to reduce US GDP by an additional 0.1 per cent. In 2025, the Trump tariffs are expected to raise federal tax revenues by USD 258.4 billion—or 0.85 per cent of GDP—making them the largest tax hike since 1982. Notably, these tariffs exceed the tax increases enacted under Presidents George H.W. Bush, Bill Clinton, and Barack Obama.
Behind Xi’s tango overture to India: It appears that India is increasingly on the radar of China’s strategy to offset the impact of Trump’s tariff offensive. In a recent communication to the Indian President, Droupadi Murmu, Chinese President Xi Jinping extended what appears to be an olive branch, proposing a symbolic ‘tango’ to mark 75 years of bilateral trade between the two countries. The tango, it may be mentioned, is a lively South American dance with a strong rhythm, performed by two partners holding each other closely—perhaps a metaphor for genuine connection.
Xi Jinping further noted that “it is the right choice” for the two countries to become “partners of mutual achievement and realise the ‘Dragon-Elephant Tango,’” which, he added, “fully serves the fundamental interests of both countries and their peoples.”
Beijing is clearly on a broad charm offensive, seeking to reroute its exports away from the United States to more receptive destinations, as Washington raises new trade barriers. Tariffs imposed earlier this year by the US administration stood at 20 per cent but were more than doubled last week to 54 per cent, with an effective average rate reaching 65 per cent—raising the cost of Chinese imports to levels many analysts view as uncompetitive. Beijing’s response was swift. Financial markets reeled as China’s finance ministry announced that it would retaliate by raising tariffs on all US goods by 34 per cent, effective from 10 April. The late US decision to keep its decision on the new tariff plan in abeyance for 90 days, while keeping the tariff at 104 percent against the Chinese goods appears to have prompted a full-scale US-China confrontation.
Understandably, investor sentiment has grown anxious. With the trade war escalating, fears of a potential recession in the US are mounting, as companies begin to reduce investment and cut jobs in a bid to weather the storm.
US-China flare-up may open export window for India
The US decision to keep its decision on the new tariff plan in abeyance for 90 days, while keeping the tariff at 104 percent against the Chinese goods appears to have prompted a full-scale US-China confrontation. Meanwhile, the US Treasury Secretary, Scott Bessent, has cautioned the Communist Party of China (CPC) for its decision to escalate the tariffs a ‘big mistake’, especially in the context of the United States’ enormous trade deficit with China. According to the UN Comtrade database, in 2023, China imported goods worth 165 billion USD, while its exports to the US stood at USD 502 billion—over three times as much.
The impact of Trump’s decision to pause reciprocal tariffs for most countries except for China has had a visible impact on US stock indexes. The Dow soared by nearly 3000 points, while Nasdaq went up by 12.1 per cent on April 11. The US President reiterated to the media that the country’s trading partnerships “weren’t sustainable.” Earlier, in Canberra, Australian Prime Minister Anthony Albanese, just a few weeks before the country’s general elections scheduled in May, rejected the proposal of the Chinese Ambassador Xiao Qian to join hands against Trump’s tariff plan.
Meanwhile, Chinese authorities appear to have tightened vigil on internet platforms, reinforcing controls through the “Great Firewall.” This has been accompanied by increased moderation of tariff-related content on social media. On Weibo, hashtags and searches for terms like ‘tariff’ or ‘104’ are reportedly restricted, with pages showing error messages. In an apparent effort to deflect criticism, state broadcaster CCTV has used Weibo to link US tariffs to shortages of everyday goods such as eggs. Censorship has also extended to WeChat, where posts downplaying the economic impact of the American tariffs are being quietly circulated.
Pang Jiulin, a Beijing-based lawyer having more than 10.5 million followers on his Weibo account has cautioned that if China reciprocated the American decision to impose 104 per cent tariff, the American buyers might stop buying the Chinese products, and they might be quickly replaced by exports from India and Vietnam.
Tariffs rise but BYD sails on
Despite the higher tariffs imposed by the UK and the European Union on Chinese automobiles, shiploads of BYD—‘Build Your Dream’—the world’s most popular electric cars, have already arrived at major European ports including Rotterdam, Bristol, Bremerhaven, and Flushing. Additionally, consignments of 5,000 electric vehicles are being readied for shipment from Shenzhen, China, to Flushing in the Netherlands and Bremerhaven in Germany. From BYD’s Changzhou plant, another 5,000 cars are expected to set sail from Yantai, Shandong, bound for Bristol and Rotterdam. Amidst the ongoing tariff war recently triggered by Washington, the BYD fleet—which has already overtaken Elon Musk’s Tesla—appears poised to plant its victory flag in Europe.
