What Happened to India Becoming the Next China?

New York Times

06-08-2025

President Trump all but declared economic war against India on Wednesday, threatening to add a 25 percent punitive tariff for India's purchases of Russian oil on top of a 25 percent tariff he announced last week. In his second term, Mr. Trump had been expected to marshal India as a friendly counterweight to the challenge posed by China.
But added together, the 50 percent tariff paints India as a political enemy, putting it in the company of Brazil, whose leftist president sparred with Mr. Trump when the country was threatened with a similarly punishing tariff rate. The crisis between India and the United States suddenly looks much bigger than the terms of trade.
The onslaught against India started on July 30, when Mr. Trump declared that India's economy was 'dead.' Until that point, his administration had been angling to reduce India's trade barriers, but said nothing about its two years of buying Russian oil at a wartime discount.
Before the shock of Mr. Trump's announcement in April of sweeping global tariffs, the world's two largest democracies seemed to be enjoying the friendship that its leaders had forged.
At a meeting with Mr. Trump at the White House in February, India's prime minister, Narendra Modi, described India's intention to become one of the world's most advanced economies, with the United States as a partner.
'In the language of America, it's 'Make India Great Again' — MIGA,' he said. 'When America and India work together, this MAGA plus MIGA becomes a 'mega partnership for prosperity.'' Mr. Trump smiled.
Left unmentioned but lingering just out of sight was China, the only country with a population to rival India's and an economy to stand in its way. China is also far and away America's most important economic competitor. Together, the United States and India were seen as ready to use each other to try to restrain China's might.
Mr. Modi's confidence in enlisting the United States in its economic rise was well grounded. U.S. administrations have been courting India as a geopolitical ally for more than a quarter century, since India announced its nuclear arsenal as a deterrent, it said, to China.
And American dollars have poured into India as China's economy has matured and become more assertive. The Covid-19 pandemic and the war in Ukraine were the catalysts for a surge in investment. Multinational companies grew excited about doing business in India, to reduce the risk of exposure to China, as it girds for a trade war with the United States and possibly a real war with Taiwan. Manufacturing and professional services led the way.
Wall Street followed, banking on the future growth of India, with its relatively young population and enviable political stability.
But over the past week, Mr. Trump's escalating attacks on India have suddenly undermined this joint venture and sent reverberations throughout the business worlds of both countries. On Wednesday, an executive order by Mr. Trump said that India would face an extra 25 percent tariff starting on Aug. 27 if it continued to buy oil from Russia. That levy on Indian goods imported into the United States would come on top of a 25 percent tariff that Mr. Trump announced last week, which is set to take effect on Thursday and on its own ranks as one of the highest rates in Asia.
India's foreign ministry responded to Mr. Trump's executive order on Wednesday, reiterating that the country's motives for importing oil from Russia were tied to the energy needs of its 1.4 billion people. It was 'extremely unfortunate that the U.S. should choose to impose additional tariffs on India for actions that several other countries are also taking in their own national interest,' the ministry's statement said. Indian officials signaled over the weekend that they did not intend to stop buying Russian oil.
With his tariff threats, Mr. Trump has thrown months of trade talks between both countries into question. Just a couple weeks ago, negotiators and business leaders sounded upbeat. Even with some difficult details to be settled, the expectation was that India and the United States mean too much to each other to let a global trade war tear them apart.
Mr. Modi was one of the first world leaders to visit Mr. Trump in Washington after he returned to the White House in January. The two men had long shared what was by all appearances a close relationship. As political leaders, both are regarded as strongmen.
The United States was earlier on wary of Mr. Modi, who had been denied a visa to the United States on the grounds that he played a role in the deadly anti-Muslim riots in 2002. But he was embraced when he became prime minister in 2014.
Part of the calculation was based on security and the possible future of military alliances across Asia. Yet, India's attractive qualities as a partner in defense always hinged on the promise of its economy.
Companies like Apple have poured billions into India, which in 2023 eclipsed China in population, with eyes on India's domestic market and its capacity to export manufactured goods to the United States and elsewhere. Those investments were supposed to be better than profitable; they were supposed to reduce or eliminate everyone's dependence on China to be the factory of the world.
The 25 percent tariff alone, already much higher than Asian competitors' like Vietnam, Japan and South Korea, would reduce the viability of such a trade. A 50 percent tariff would kill it.
On Tuesday, Mr. Trump took aim at two other industries that were explicitly being developed in India as an alternative to China.
Pharmaceuticals, where India has world-beating advantages and sells more than $10 billion a year to the United States, is to face a special tariff that could eventually reach 250 percent, Mr. Trump said, to be announced 'within a week or so.' Eli Lilly, as one of many American corporations that have invested in India, for example, recently invested $3 billion in an Indian factory. India makes nearly 40 percent of the generic drugs bought in the United States.
Mr. Trump's plan is to bring back manufacturing to the United States, which is also the reason he has given for imposing another special tariff on semiconductors. Unfortunately for Indian and American companies, and some in East Asia too, everyone has been spending to make India competitive in this sector. Micron, based in Idaho, has taken advantage of Indian government subsidies to put $2.5 billion into building chip-making facilities in Mr. Modi's home state of Gujarat.
High finance has also followed bricks-and-mortar businesses. The Indian stock market has been on a bull run, finding enthusiastic new buyers among middle-class Indians. That made foreign investors eager for private deals. Stephen Schwarzman, the chief executive of Blackstone, a New York investment firm, said this year that it was putting $11 billion into Indian data centers to fuel the global artificial intelligence boom.
A Mumbai-based investment professional, who was not authorized to speak publicly, said there was much more at stake in these investments than their dollar value.
Bets like Blackstone's are about the future of business between India, China and the United States, he said, and bring expertise from one economy to another. India was benefiting from that. But now it looks like a vulnerability.
The rupture of the relationship has generated huge uncertainty. Who wants to be responsible for making the next big bet?
Some parts of the U.S.-Indian equation look relatively secure. The trade in goods between the two countries has never been as important to their economic relationship as their trade in services, and other people-to-people exchanges. Indians are just as present in American boardrooms as American-trained Indians are in Mumbai's corner offices.
One aspect of this exchange, the proliferation of globally integrated, high-end offices in India — first in information technology and then across the professions — has remained a bright spot. Worth $65 billion last year, it is more valuable than the total trade deficit in goods. China does not hold a candle to India's ability as a hub for office work other countries send its way.
As frightening as the new tariffs are for many Indian factories, most American investors who have built stakes in India are not yet fleeing.
They do, however, remember what happened in 2020, when India and China traded blows at their border and 24 soldiers were killed. Almost overnight, Chinese companies were forced to ditch their Indian investments at a loss.
A war of words and tariffs is different, of course. But Indian and American cooperation around China is no longer something that anyone can count on.