To understand India’s growing trade imbalance with China, look inside Indian factories, The New York Times reports. Chinese machinery, electronic components and industrial materials remain deeply embedded in Indian production. Electric vehicle manufacturers depend on rare-earth magnets from China, while Indian pharmaceutical companies rely on Chinese ingredients. Despite years of efforts to reduce this dependence, India has instead been buying more from its giant neighbour.
The total volume of goods exchanged between the two countries has nearly doubled over the past five years to $151 billion a year. Yet the relationship has become increasingly unbalanced. India now buys roughly seven times as much from China as it sells there, according to the New York Times report, intensifying concerns about the economic and strategic consequences of that dependence.
The expansion in trade has occurred despite a profound deterioration in bilateral relations following a bloody hand-to-hand skirmish at the Himalayan border in 2020 that killed at least 24 soldiers and brought high-level diplomacy to an abrupt halt. Xi Jinping, China’s top leader, is due to set foot in India on Saturday for the first time in more than six years, with trade expected to be a major source of tension alongside the disputed border.
For India, the problem is particularly difficult because its industrial ambitions increasingly depend on Chinese goods. Keeping Chinese products out is not considered an option, yet continued dependence exposes Indian industry to strategic risks and makes it harder for domestic companies to achieve the scale required to compete with Chinese rivals. Rising energy costs caused by the U.S.-Israeli war with Iran are adding pressure, as Chinese imports contribute to India’s global trade deficit and weaken its currency.
The New York Times report places India’s dilemma within a wider international concern. China’s record trade surplus reached nearly $1.2 trillion last year, intensifying fears among trading partners about the growing dominance of Chinese companies across industries. At a gathering of Group of 20 economic officials this month, U.S. Treasury Secretary Scott Bessent accused China of blocking a joint statement criticising countries “with excessive and persistent external surpluses.”
For India, however, simply shutting Chinese goods out could undermine its own industrial objectives. Shekhar Aiyar, director of the Indian Council for Research on International Economic Relations, argued that India should “aggressively invite Chinese firms in” to critical sectors including green technology, semiconductors and manufacturing. In batteries and solar power alone, he estimated, China has a 30% cost advantage over any other exporter.
India adopted a tougher approach after the 2020 clash, banning TikTok and dozens of other Chinese consumer apps while restricting Chinese investment in Indian startups. The country had appeared well placed to attract multinational companies seeking alternatives to China, potentially challenging China’s position as the “factory to the world”. Instead, Vietnam and other Southeast Asian countries captured much of the investment while China remained central to global supply chains.
Santosh Pai, a New Delhi lawyer advising Chinese and Indian companies, said India’s attempts to reduce dependence had produced mixed results. Imports apparently originating elsewhere can still consist of Chinese goods processed or repackaged in Southeast Asia. “The trade measures are well intentioned, but they don’t all work the way we want,” he said. “There is a lot of excess supply in China and a lot of excess demand in India.”
The relationship therefore leaves both sides with incentives to negotiate. India wants Chinese money and technology, while China wants access to India’s potentially enormous market. Yet each seeks to protect its own strategic interests. India wants investment that strengthens its industrial base rather than simply increasing Chinese dominance, while Chinese companies want opportunities in a rapidly growing market.
The tension is most pronounced in high-value manufacturing. Apple’s iPhone production, about a quarter of which has shifted to India, illustrates how New Delhi can gradually attract parts of China-centred manufacturing through companies such as Taiwan’s Foxconn. At the same time, China retains significant leverage through strategic sectors including rare-earth magnets and pharmaceutical ingredients.
Travel and business visas remain another practical obstacle after years of restrictions following the 2020 clash. India began issuing visas more freely last year, while China has tightened exit rules for some citizens considered potential threats to national industrial or technological security. Santosh Pai said Xi and Prime Minister Narendra Modi could address these issues at the summit, including business visas and the movement of Chinese engineers.
India possesses considerable leverage through its domestic market of 1.4 billion people, which could become increasingly valuable as incomes rise. But China’s control over critical supplies remains a powerful constraint. For Somnath Mukherjee, chief investment officer at ASK Wealth Advisors in Mumbai, the pressure on India’s currency is ultimately “simple arithmetic”: the rupee will remain under pressure while India buys more than it sells.
“It is a fact that many countries, China and now the U.S. as well, have started weaponizing trade,” Mukherjee said. “China’s weaponized product access has become a source of massive concern.” The coming summit confronts India and China with a difficult economic reality: political tensions may be managed, but their industrial interdependence is proving far harder to unwind.
