Unpacking India-US Relations: Implications and Considerations for China

Abstract

This research paper examines the evolving India-US relationship and its potential impact on China’s strategic stance. The study sheds light on China’s apprehensions about this growing alliance by analysing trade, diplomacy, and military collaborations. The paper proposes that India’s increasing reliance on the US, coupled with strategic agreements, will prompt China’s recalibration of its geopolitical strategy. The paper underscores the complex interplay of global powers and its implications for regional stability.  This study contributes to the existing literature by providing a consolidated analysis from diverse sources, ensuring objectivity and minimizing bias. It acknowledges the limitations by not considering scenarios where India pursues non-alignment or the US distances itself from India due to the latter’s right-wing policies. The validity of the conclusions is supported through comprehensive data analysis and cross-referencing with multiple perspectives, addressing the complexities of global relations.

Introduction

In an increasingly interconnected and interdependent global landscape, the dynamics between major world powers hold significant implications for regional stability and global equilibrium. This study assumes that countries take geopolitical and economic decisions primarily in their self-interest, a perspective rooted in realist theories of international relations. Realism posits that states act to maximize their power and security in an anarchic international system. Consequently, the analysis considers that the relationships between the mentioned states will not undergo significant changes in the near future, based on current strategic and economic interests.

The evolving relationship between India and the United States, two prominent actors on the international stage, has garnered considerable attention and speculation. As these nations fortify their diplomatic, economic, military, and technological ties, questions arise regarding the potential ramifications for other global stakeholders, most notably China. Specifically, this paper aims to address how the strengthening of India-US ties affects China’s economic strategies, regional influence, and military positioning¹.

The research paper delves into the evolving India-US relationship and its potential impact on China’s strategic outlook. By analysing trade data, diplomatic agreements, military collaboration, and technological advancements, the study aims to uncover whether China should be worried about the strengthening ties between India and the United States.

The paper offers a comprehensive view of the multifaceted India-US partnership. This analysis extends beyond economic interactions to encompass military advancements and technological cooperation. The research discusses China’s possible concerns and responses to this growing relationship, shedding light on the intricate interplay between these global powers and its implications for regional stability. The theoretical framework guiding this study is based on the concepts of balance of power and strategic alliances, which are central to understanding the shifts in global power dynamics and the strategic calculations of states.

Historical Context of India-US Relations:

The historical trajectory of India-US relations can be traced back to the Cold War era when non-alignment and ideological differences defined their interactions. Renowned freelance American foreign policy writer Meenakshi Ahmed’s book “A Matter Of Trust: India-US Relations from Truman to Trump” highlights the initial indifference and lack of understanding between the two nations. President Truman’s dismissive remark, “I thought India was pretty jammed with poor people and cows wandering around the streets, witch doctors and people sitting on hot coals and bathing in the Ganges, but I did not realise that anybody thought it was important,” underscores the early misperceptions and undervaluation of India by the US leadership.

However, this narrative is not without contestation. Some scholars argue that while US policymakers were often dismissive, there were also early attempts at engagement that were overshadowed by broader geopolitical strategies. For instance, Dennis Kux’s “India and the United States: Estranged Democracies, 1941-1991” highlights that the differences between India and the United States stemmed less from lack of dialogue, misperceptions, or misunderstandings than from fundamental disagreements over basic national security policies. It notes how the United States provided significant military and economic support to Pakistan, which created tensions in the India-US relationship. This support was seen as a way to counterbalance Indian influence in the region and maintain a strategic presence in South Asia.

As the Cold War progressed, the relationship saw fluctuating dynamics influenced by global events. Shashi Tharoor, an Indian diplomat and Congress Party politician, encapsulates this sentiment by stating, “In the past, it was often said that Pakistan was a US ally but not a friend, while India was a friend but not an ally.” This reflects the complex and often contradictory nature of the relationship, were personal rapport between leaders occasionally overshadowed strategic divergences.

Moving into the 21st century, the relationship has significantly transformed. Both countries have increasingly recognized shared democratic values, economic interests, and security concerns. This shift is documented by scholars like Ashley J. Tellis in his work “India as a New Global Power: An Action Agenda for the United States,” where he explores the strategic convergence and the mutual benefits of a stronger partnership².

Moreover, the evolving economic landscape has played a pivotal role in redefining bilateral ties³. The Indian Brand Equity Fund notes that the trade relations between India and the United States have evolved into a “global strategic partnership” based on shared democratic values and increasing convergence of interests on bilateral, regional, and global concerns. The COVID-19 pandemic further highlighted the resilience and depth of this partnership, with continued cooperation in defense, trade, economics, and technology.

Trade Relations between India and US in the 21st Century:

Trade has been a critical dimension of India-US relations. The Indian Brand Equity Fund notes how trade relations between India and the United States have evolved into a “global strategic partnership” based on shared democratic values and increasing convergence of interests on bilateral, regional, and global concerns. Despite the COVID-19 pandemic, India-US cooperation was intense in various areas, including defence, trade, economics, and technology. The United States of America is India’s largest trading partner, and the Indian Economy is heavily dependent on them. India has a trade surplus with the United States, meaning that India sees the USA as a positive partner.

India views the USA as a positive partner not only because of the trade surplus but also due to several strategic and economic factors. The two countries share democratic values and a commitment to a free and open Indo-Pacific region. Additionally, the partnership in technology and innovation, defense cooperation, and efforts to combat global challenges like climate change further strengthen this bilateral relationship. These factors contribute to a robust and multifaceted partnership.

The US and India have signed several agreements between 2008-2022 and have taken steps to improve the relations between both countries. These include Trade and Investment Framework Agreement , Indo-Pacific Economic Framework for Prosperity (signed 2022), reconvening at the Trade Policy Forum, and settling WTO disputes.

India-USA building their relations on other fronts:

Hemant Taneja and Fareed Zakaria at Harvard Business Review write about how the future of India-US ties is technology. This has been seen with the recent US-India initiative on Critical and Emerging Technology, which aims to promote bilateral cooperation in artificial intelligence, biotechnology and quantum computing. Micron Technology, a US semiconductor company, recently announced intentions to invest $825 million in a new chip production and testing plant in India. They have also unveiled several defence agreements, including an agreement for India to purchase drones from the USA and develop fighter jet engines.

Implications for China:

In light of the new trade deals such as the IPEF, a sense of alarm was perceptible, with China declaring policy measures relating to trade and cooperation in the region while criticising the framework as being divisive at the same time.

China has also been aggressive in its military stance pressing India’s borders and advancing on its relationship with Pakistan. The country has increased its military presence in strategic areas such as the South China sea and along the Indo-China border.  

By investing heavily in domestic semiconductor production, China aims to reduce its reliance on US technology and mitigate the risks of supply chain disruptions. This move is a direct response to the technological advancements and collaborations between India and the US, which could otherwise undermine China’s position in the global technology landscape.

The United States has also been alarmed by China’s increasing global presence and control over East Asia. The US attempted to sign an agreement with eastern trade partners called the Trans-Pacific Partnership Agreement (TPP). This agreement completely excluded China and was signed with other East Asian powers. This was seen as a sign of the US economy reducing its reliance on China, decreasing Chinese hegemony in the region and improving trade relations with other countries.

US lawmakers on several occasions have warned the Biden administration that the US is too reliant on China, especially in the industries of automobiles and AI chip production. Hence, the US has looked to increase trade and invest in other countries like India. Renowned companies such as Tesla and Apple are setting up assembling and manufacturing plants in India.

Therefore, this paper explores the question, “Should China be concerned about India-US relations?”

Methodology

The completion of this study entailed a comprehensive data compilation process involving reputable sources such as the World Bank, World Integrated Trade Solution (WITS), International Monetary Fund (IMF), and the Bureau of Economic Affairs (BEA).

Criteria for Dataset Selection:

1. Relevance: Datasets were chosen for their direct relevance to the study’s focus on India-US relations, trade, and economic interactions.
2. Accuracy and Reliability: Sources like the World Bank and IMF are renowned for their data collection and validation processes, ensuring high-quality data.
3. Comprehensiveness: The selected databases provide extensive historical data, allowing for longitudinal analysis and trend evaluation.
4. Consistency: The datasets offer consistent data formats and definitions, facilitating accurate comparisons and analyses.

Data Analysis Process:

The data analysis phase involved using Microsoft Excel to visualize the data through graph plotting and trend evaluation. Distinct variables were established for each dataset, such as EXPIN (Exports from the United States to India) and IMPIN (Imports from the United States to India). Growth rates were rigorously assessed by comparing the most recent year to its antecedent using the formula: (Year – Previous Year) / Previous Year) * 100. The following table displays the key variables used for data analysis.

Qualitative Component:

To capture the intricacies of diplomatic and strategic maneuvers, this study also incorporates qualitative analysis through the examination of scholarly articles, policy papers, and historical documents. This qualitative component provides context and depth to the quantitative data, offering insights into the motivations and implications of India-US interactions.

Balancing Quantitative and Qualitative Data:

Although quantitative data can be utilised to assess trends and patterns, it is not always able to capture the nuances of geopolitical dynamics. The methodology recognises the inherent difficulties in relying solely on economic statistics to overcome this. The qualitative analysis aids in the interpretation of these figures in relation to diplomatic strategies, historical developments, and international relations in general.

This methodology ensures a comprehensive understanding of the complex geopolitical landscape by incorporating both quantitative and qualitative data. It also balances the limitations of each approach and provides a nuanced study of the India-US relationship and its implications for global dynamics.

Methodology Limitations:

While the methodology employed in this study provides valuable insights into the trade dynamics between India, the US, and China, it is essential to acknowledge several limitations. Firstly, there are potential data gaps, particularly in trade data that may not account for all informal or non-recorded transactions. Secondly, the reliability of sources can vary, with some data being subject to revisions or inconsistencies across different reporting agencies. Additionally, the generalizability of the findings may be limited by the specific time frame and economic context in which the data was collected. These limitations suggest that while the results are indicative of broader trends, they should be interpreted with caution. Future research could benefit from more granular data and a broader range of sources to enhance the robustness of the findings.

Temporal Relevance of Data:

The data used in this study is from different time periods and captures significant historical trends and shifts in trade dynamics. The study carefully selects time frames that are representative of major economic and geopolitical events, such as the US-China trade war and the COVID-19 pandemic. By contextualizing historical data within these significant events, the analysis provides insights that are relevant to current and future geopolitical strategies. However, it is important to acknowledge that some conclusions may be influenced by the specific time frames chosen, and ongoing developments could further impact the dynamics discussed.

Results

Figure 1 showcases India’s GDP growth from 1960 to 2021. The Y-axis represents the annual GDP, while the X-axis denotes the corresponding years. The graph displays a clear upward trend, with GDP values fluctuating around an ascending line, representing the overall trajectory.  India’s economic landscape has witnessed a remarkable transformation over the years, marked by a steady and impressive increase in its Gross Domestic Product (GDP). This graph illustrates India’s extraordinary journey of economic expansion Many factors have influenced India’s GDP, one of them being the India-US trade relationship.

The US is the third-largest investor in India, with over $60 billion invested between 2000 and 2023. This investment has spurred growth in various sectors such as technology, manufacturing, and services, contributing directly to India’s GDP. Moreover, Indian companies have increasingly invested in the US, further strengthening economic ties and fostering a conducive environment for growth on both sides.

Moreover, other factors such as domestic policy reforms, infrastructural developments and an increased consumption power have contributed to GDP growth for the nation. However, the synergy created through India-US trade and investment has been a major driver, reinforcing the importance of this bilateral relationship.

Therefore, examining the export-import relationship between India and the USA is essential. This visual representation offers valuable insights into the economic interactions between these two nations, shedding light on the dynamics of their bilateral trade relationship.

Figure 2 evaluates the trends in data for Exports and Imports in US Millions from India to the United States of America. An evident growth in trade is seen, suggesting an improvement in trade relations between both countries. The data also depicts India’s trade surplus with the United States, indicating how trade with the US has been beneficial, proving how India needs the US as a partner and suggesting that the US-India trade relationship has been growing.

While the upward trend in trade growth highlights the positive trajectory of the India-US trade relationship, it is essential to consider external factors that could have influenced these trends. Global economic trends, such as fluctuations in international commodity prices, changes in global demand, and economic cycles, can significantly impact bilateral trade. Additionally, domestic policy changes, including tariff adjustments, trade agreements, and regulatory reforms, also play a crucial role in shaping trade dynamics.

For instance, the implementation of the Goods and Services Tax (GST) in India in 2017 could have facilitated smoother trade operations, indirectly contributing to the observed trade growth. Similarly, US policies aimed at strengthening economic ties with India, such as the US-India Strategic Partnership, might have encouraged increased trade volumes.

Moreover, a dip in trade from 2019 to 2020 was influenced by the Covid-19 pandemic. The pandemic led to a disruption in supply chains, lockdowns and the economy slowing down leading to a decrease in trade volumes testing the resilience of India-US trade relations. However, the pandemic emphasised the adaptability of both nations as they made a swift recovery by collaborating extensively in healthcare, pharmaceuticals and technology sectors paving the way for new trade opportunities leading to increased trade volumes in the years after.

To analyse India and the US’s trade relationship it is imperative to compare India with other Asian countries that the US trades with, notably China.

China is one of the US’s largest trade partners; hence, comparing Indian trade with the US to Chinese trade with the US helps us further analyse India’s growth and reliance on the US economy. China stands as one of the United States’ foremost trade partners, making it an imperative point of reference for comprehending India’s trade interactions with the US. We can better comprehend India’s economic growth trajectory and degree of reliance on the US economy by contrasting its trading activity in the US market with those of China. This comparative analysis allows us to discern the nuanced dynamics of India’s trade relations with the United States, highlighting key trends, challenges, and opportunities that shape these vital economic connections.

Figure 3 depicts the export relationship between the United States of America and two trading partners – China and India. The graph demonstrates a steady growing relationship of increased exports from India to the US. It also shows a fluctuating trade relationship between China and US. However, the exports from China to the US have continued to grow but there was a dip during 2019 – because of the trade war – indicating an unreliable trade relationship between the countries recently.  After further analysis the growth rate of trade between India and US has been an overall +9.25%, whereas the overall growth in exports from China to the US has been +5.51%. 

However, this comparison must consider the distinct economic structures, policies, and geopolitical contexts of China and India. China’s larger economy, higher manufacturing capacity, and export-oriented policies contrast with India’s service-oriented economy and market-driven policies. Furthermore, geopolitical factors, such as the strategic competition between the US and China versus the strategic partnership between the US and India, play crucial roles in shaping trade dynamics. These differences necessitate a nuanced analysis to ensure a fair and meaningful comparison. Therefore, while comparing the export growth rates, it is essential to account for these structural and policy differences to provide a comprehensive analysis.

Examining import data is equally crucial, as it provides a holistic view of the United States’ dependence on the economies of both India and China. We can discern how much the US relies on these two nations to satisfy its diverse consumption needs and industrial demands by delving into import figures.

Figure 4 indicates the increase in imports from the United States of America to India. It depicts a steadily growing trade relationship between both countries. It indicates how India is slowly becoming more reliant on the US as trade between both nations increases. The orange line shows a fluctuating relationship between both countries. The significant dip seen in 2019 is an apparent trade war effect. This depicts a changing relationship in both countries where China is slowly trying to reduce its reliance on the USA.

It is essential to consider external factors such as global economic conditions, domestic policy changes, and the impact of significant events like the COVID-19 pandemic. These variables can significantly influence trade patterns and should be accounted for in the analysis to avoid oversimplification of the complex trade dynamics between these nations. Additionally, understanding the structural differences between the Indian and Chinese economies—such as India’s growing service sector versus China’s dominant manufacturing sector—provides context for the observed trade trends. This ensures a fair and meaningful comparison between the two countries’ trade relationships with the US.

To gain a more comprehensive and insightful perspective on the readings, it becomes imperative to widen our scope and assess the percentage of shares that imports and exports hold within the broader context of the US economy. This macroeconomic viewpoint not only enhances our understanding of India’s and China’s roles but also provides valuable insights into the United States’ overall economic landscape.

Furthermore, by comparing the shares of imports and exports between India and China in the broader context of the US economy, we gain deeper insights into the competitive dynamics between these two Asian giants. It sheds light on their respective contributions to the US trade balance and reveals which sectors or industries are more reliant on either India or China.

Figure 5(a,b) display the trends of India and China partner shares in total United States Imports shares. Figure 1.5 demonstrates increased imports from India, suggesting increased reliance on India for the US economy even though India is a smaller trading partner than China. Figure 1.6 shows a fluctuating trend with trade in China, indicating a weakened US-China trade relationship heading downhill. The impact of the trade war between both countries can be clearly seen.

Moreover, the partner share of imports also illustrates China’s economic leverage on the United States because a higher share of imports from a country can translate into greater economic leverage. For instance, China’s ability to supply large volumes of consumer goods to the US gives it substantial economic influence.  However, this relationship has been strained due to geopolitical tensions and the trade war mentioned above.

Conversely, India’s increasing share of US imports, although smaller compared to China, suggests a growing economic interdependence. This can enhance India’s geopolitical influence, especially as the US seeks to diversify its supply chains away from China.

However, it is essential to recognize the limitations of using these macroeconomic figures alone to assess the intricate dynamics between these nations. The trade data should be analyzed alongside other factors such as foreign direct investment (FDI), technology transfers, and strategic alliances, which also play crucial roles in shaping economic and geopolitical relationships.

Moreover, it is also important to look at specific sector growth. Trade in consumer goods is one of the largest in both countries. Looking at growth in this specific sector helps gain a broad view of growth for each country and the reliance of each country on the other’s manufacturing of consumer goods.

Figures 6(a,b) provide insights into the growth trends in the Consumer Goods sector for India, China, and the United States from 2014 to 2020. The growth trends in the Consumer Goods sector show significant variation between India and China, reflecting their different economic structures and market demands. The consumer goods sector includes various products such as electronics, textiles, apparel, home appliances, and personal care items.

China has traditionally dominated the global market in electronics and home appliances due to its large-scale manufacturing capabilities. It provides China with a competitive advantage in the global market and significant economic leverage, making it a key player in global supply chains.

In contrast, India has been a major exporter in textiles, apparel and pharmaceuticals due to the large labour force present in the country. Additionally, India’s pharmaceutical exports have gained strategic importance, especially during the COVID-19 pandemic, highlighting the country’s role in global healthcare supply chains.

Figures 1.7 and 1.8 provide valuable insights into the growth trends in the Consumer Goods sector, highlighting the strategic importance of different types of goods and their alignment with broader economic shifts. They reflect upon the diversification of supply chains and changes in consumer demand patterns. They highlight the US’s desire to reduce its dependence on China as shown by the fluctuating graph in Figure 1.8. Moreover, changes in consumer demand, particularly in the US, have also influenced trade patterns. There is a growing demand for sustainable and ethically produced goods, where India’s textiles and apparel sector has a competitive edge. This has led to India’s consumer goods sector benefitting.

Discussion

The trade and economic indicators presented in this study reveal significant trends that directly support the central claim regarding China’s recalibration of its geopolitical strategy in response to India-US relations. The steady increase in India’s share of US imports, particularly in the consumer goods sector, underscores a strategic shift as the US diversifies its supply chains away from China. This trend aligns with the broader geopolitical narrative that China perceives a growing India-US economic partnership as a challenge to its dominant position in global trade.

Moreover, the fluctuations in US-China trade, exacerbated by the trade war, highlight China’s vulnerability to changes in US trade policies. These economic indicators suggest that China is increasingly aware of the need to adapt its strategy to maintain its influence. This recalibration is evident in China’s efforts to strengthen its regional alliances and invest in alternative markets to counterbalance the deepening India-US ties.

Thus, the findings represent the powerful rising relationship between India and the US and also indicate the fluctuating relationship between China and the US. However, there are many other factors to consider while examining the relationship between the countries.

The first being investment. U.S.A. is the 3rd largest investor in India, with over $60 billion dollars invested between 2000 and 2023. Many companies have also recently shifted to India and have begun new outreach programs in the country. For example, Apple, Google and Amazon have also increased their investment in the country. At the end of 2020, Indian investment in the United States was a large figure of US$ 12.7 billion, supporting over 70,000 American jobs. Almost 200,000 Indian students in the United States contribute US$ 7.7 billion annually to the U.S. economy.

The USA and India have also improved their economic relations through many different agreements and discussions. The U.S.-India trade and investment partnership is an engine for global growth, with bilateral trade exceeding $191 billion in 2022, nearly doubling from 2014⁴. 

India and US are also reconvening the India-U.S. Trade Policy Forum to enhance further the bilateral trade relationship by addressing trade concerns and identifying further areas for engagement⁴. Prime Minister Modi also expressed India’s interest in being recognized as a Trade Agreements Act-designated country by the United States to enhance the integration of both economies further and promote trade and investment between the two countries⁵.

The Indo-Pacific Economic Framework for Prosperity is a new agreement signed between US and other Asian powers that excludes China⁶. These countries together are 40% of the world GDP making this alliance a powerful one. The alliance aims to discuss 1) Trade; (2) Supply Chains; (3) Clean Energy, Decarbonization, and Infrastructure; and (4) Tax and Anti-Corruption. It is proof of the growing ties between the US and India and is proof of the tensions between the US and China.

The United States and India launched a new high-level partnership, the “U.S.- India Climate and Clean Energy Agenda 2030 Partnership,” which envisages bilateral cooperation on strong actions in the current decade to meet the goals of the Paris Agreement.

India and the United States have signed an agreement for cooperation in the development of Air-Launched Unmanned Aerial Vehicles (ALUAV), to expand bilateral defense and military cooperation. In 2022, India and the United States signed a bilateral space situational awareness arrangement, and this will support greater information sharing and cooperation in space. The US has also given India drones and other machinery for military purposes.  All of these are just a few examples of the fond relationship that is growing between both countries.

China’s growing wariness regarding the improving relations between India and the United States is increasingly evident on the global stage⁷. As India and the US strengthen their diplomatic ties, economic collaborations, and defence partnerships, Beijing’s concerns about the implications for regional power dynamics and its own strategic interests have intensified. China criticised the IPEF and has increased its military stance on Indian borders⁸. It has also become a strong ally of Pakistan, one of India’s largest adversaries.

Conclusion

In conclusion, the evolving relationship between India and the United States holds significant implications for global dynamics, particularly concerning China’s strategic outlook. This research paper has extensively analyzed the historical context, trade relations, and various aspects of the India-US partnership. The findings illustrate a growing and multifaceted alliance that encompasses economic, technological, and military dimensions. The trade data reveals India’s increasing reliance on the United States, while India’s surging economic growth, rising investments, and mutual agreements underscore the depth of their collaboration. China’s response to this partnership has been multifaceted, encompassing diplomatic manoeuvres, military actions along India’s borders, and alliances with other regional powers⁹. China’s concerns about encirclement, economic competition, and the shifting geopolitical landscape are palpable, driving adjustments in its strategies. Ultimately, while the India-US relationship may not necessarily be directed against China, its growth undoubtedly prompts a recalibration of China’s own geopolitical approach. The complex interplay between these global powers underscores the evolving nature of international relations and the need for careful strategic navigation in an increasingly interconnected world.

Acknowledgements

Thank you for the guidance of Tacye Hong mentor from Cambridge University and Lumiere Education in the development of this research paper.

Reference

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