Reeling from Trump's tariffs, India and China seek a business reboot

India's Prime Minister Narendra Modi landed in China on Sunday with the sting of Donald Trump's US tariffs still top of mind.

Since Wednesday, tariffs on Indian goods bound for the US, like diamonds and prawns, now stand at 50% – which the US president says is punishment for Delhi's continued purchase of Russian oil.

Experts say the levies threaten to leave lasting bruises on India's vibrant export sector, and its ambitious growth targets.

China's Xi Jinping, too, is trying to revive a sluggish Chinese economy at a time when sky-high US tariffs threaten to derail his plans.

Against this backdrop, the leaders of the world's two most populous countries may both be looking for a reset in their relationship, which has previously been marked by mistrust, a large part of it driven by border disputes.

"Put simply, what happens in this relationship matters to the rest of the world," Chietigj Bajpaee and Yu Jie of Chatham House wrote in a recent editorial.

"India was never going to be the bulwark against China that the West (and the United States in particular) thought it was... Modi's China visit marks a potential turning point."

India and China are economic powerhouses – the world's fifth and second largest, respectively.

But with India's growth expected to remain above 6%, a $4tn (£3tn) economy, and $5tn stock market, it is on the way to moving up to third place by 2028, according to the International Monetary Fund (IMF).

"While the world has traditionally focused on the single most important bilateral relationship in the world, US and China, it is time we shift more focus on how the second and would-be third largest economies, China and India, can work together," says Qian Liu, founder and chief executive of Wusawa Advisory, based in Beijing.

But the relationship is deeply challenging.

The two sides have an unresolved and long-standing territorial dispute – that signifies a much broader and deeper rivalry.

Violence erupted across Ladakh's Galwan Valley in June 2020 – the worst period of hostility between the two countries in more than four decades.

The fallout was largely economic – a return of direct flights was taken off the table, visas and Chinese investments were put on hold leading to slower infrastructure projects, and India banned more than 200 Chinese apps, including TikTok.

"Dialogue will be needed to help better manage the expectations of other powers who look to India-China as a key factor of Asia's wider stability," Antoine Levesques, senior fellow for South and Central Asian defence, strategy and diplomacy at IISS, says.

There are other fault lines too, including Tibet, the Dalai Lama, and water disputes over China's plans to build the world's largest hydroelectric power project across a river shared by both nations, as well as tensions with Pakistan after the Pahalgam attack.

India also does not currently enjoy good relations with most of its neighbours in South Asia, whereas China is a key trading partner for Pakistan, Bangladesh, Sri Lanka and Afghanistan.

"I would be surprised if a BYD factory is coming to India, but there may be some soft wins," Priyanka Kishore, founder and principal economist at research company Asia Decoded, says.

It's already been announced that direct flights will resume, there may be more relaxations on visas, and other economic deals.

However, the relationship between Delhi and Beijing is "an uncomfortable alliance to be sure", notes Ms Kishore.

"Remember at one point, the US and India were coming together to balance China," she adds.

But India is completely perplexed with the US and its position: "So it's a smart move – and feeds into the multipolar narrative that both India and China believe in."

Modi is travelling to China for the Shanghai Cooperation Organisation (SCO) - a regional body aimed at projecting an alternative worldview to that of the West. Members include China, India, Iran, Pakistan and Russia.

In the past, India has downplayed the organisation's significance. And critics say it hasn't delivered on substantial outcomes over the years.

The June SCO defence ministers' meeting failed to agree on a joint statement. India raised objections over the omission of any reference to the deadly 22 April attack on Hindu tourists in Indian-administered Kashmir, which led to the worst fighting in decades between India and Pakistan.

But experts say the downturn in Delhi's relations with Washington has prompted India to rediscover the utility of the SCO.

China, meanwhile, will value the optics of Global South solidarity amid Trump's tariff chaos.

The Brics grouping - of which China, India, Russia, Brazil and South Africa are the founding members - has drawn the ire of Trump, who has threatened to slap additional tariffs on group members on top of their negotiated rates.

Modi last met Xi and Russia's Vladimir Putin at the Brics summit in Russia in October 2024. Last week, Russian embassy officials said Moscow hopes trilateral talks with China and India will take place soon.

"Leveraging each of their advantages - China's manufacturing prowess, India's service sector strengths, and Russia's natural resource endowment - they can work to reduce their dependence on the United States to diversify their export markets and ultimately reshape global trade flows," Bajpaee and Yu said in their editorial.

Delhi is also leveraging other regional alliances, with Modi stopping in Japan on the way to China.

"Asean and Japan would welcome closer co-operation between China and India. It really helps in terms of supply chains and the idea of Make in Asia for Asia," Ms Kishore says, referring to the political grouping comprising 10 Southeast Asian economies.

India continues to be reliant on China for its manufacturing, because it sources raw materials and components from there. It will likely be looking for lower import duties on goods.

India's strict industrial policies have so far held it back from benefiting from the supply chain shift from China to South East Asian countries, according to experts.

There is a case for partnership, a strong one, says Ms Kishore, where India pitches to manufacture more electronics.

She points out that Apple makes airpods and wearables in Vietnam, and iPhones in India, and so there would be no overlap.

"Faster visa approvals would be an easy win for China as well. It wants market access in India either directly or through investments. It's dealing with a shrinking US market, it's already flooded Asean markets, and a lot of Chinese apps like Shein and TikTok are banned in India," says Ms Kishore.

"Beijing would welcome the opportunity to sell to 1.45 billion people."

Given the complexity of the relationship, one meeting is unlikely to change much. There is a long way to go on improving China-India ties.

But Modi's visit to China could repair some animosity and send a very clear signal to Washington that India has options.