India Eyes Closer Trade Ties with U.S. as it Seeks to Cut Dependence on China

India is actively pursuing enhanced trade relationships with the United States while aiming to decrease its economic dependence on China. This strategic shift is part of New Delhi’s broader plan to diversify its supply chains, safeguard domestic industries, and strengthen geopolitical partnerships amidst a divided global economy.

The recent visit of U.S. Vice President JD Vance to New Delhi emphasized this transition. In meetings with Prime Minister Narendra Modi, both parties expressed enthusiasm for expanding trade ties and explored the possibility of a long-term economic agreement. The goal is to increase bilateral trade from its current $190 billion to $500 billion by 2030.

India is reportedly asking the U.S. for tariff reductions while proposing to lower tariffs on American imports and increase its purchases of U.S.-manufactured military equipment. This dialogue signals a growing partnership between the two democracies, particularly due to mutual worries regarding China’s economic and military aims in the Indo-Pacific region.

Simultaneously, in a bid to protect local industries, India is set to impose a temporary 12% safeguard duty on specific steel imports, predominantly from China, South Korea, and Japan. The Directorate General of Trade Remedies (DGTR) suggested this action following a surge in low-cost imports that jeopardized the survival of local steel producers, particularly smaller mills.

This safeguard duty aims to prevent the influx of cheap Chinese steel into India, which has been detrimental to local producers by lowering operational efficiency and increasing financial losses.

Additionally, India is capitalizing on its energy requirements to rebalance trade with the U.S. In light of rising energy demands, India has agreed to significantly boost its imports of U.S. oil and liquefied natural gas (LNG). This serves two purposes: it helps reduce India’s trade deficit with the U.S. and enhances energy security against uncertainties in global supply chains.

The energy arrangement also acts as a safeguard against potential U.S. retaliatory tariffs and further solidifies India’s role as a pivotal ally in America’s Indo-Pacific strategy.

However, analysts warn that India’s capacity to drastically lower imports from China is limited in the near term. Due to a study by Moneycontrol, it was revealed that China is the more economical source for over 85% of the more than 4,000 products exchanged between the two countries. In contrast, the U.S. is priced competitively in only about 15% of goods.

This cost disparity complicates the ability of Indian companies to change suppliers without facing higher expenses, particularly in sectors like electronics, pharmaceuticals, and machinery, where Chinese products dominate global supply chains.

India’s initiative to steer away from China and solidify its ties with the U.S. involves both economic and geopolitical dimensions. Although the transition to decreased reliance on Chinese products will be a gradual and intricate process, India’s proactive engagement with the U.S. represents a significant advancement in redefining global trade alliances in the 21st century.

As both democracies engage in trade discussions, tariffs, and technological collaboration, the results may significantly affect not only India and the U.S. but also the global economic landscape.