"THE INDIA FACTOR" WILL TEMPER BEIJING'S INTRANSIGENCE ON THE TARIFF WAR

In the not too distant past, Western offshoring and capital flowed into China lit the fuse of its industrial explosion which helped make it the world's second largest economy. India now stands at the same crossroads -- where geopolitics meets opportunities. 

When I started drafting my previous blog on the 5 Scenarios of the US-China Tariff War, I coined The Taiwan Factor, The Indian Factor, and The RMB Factor which I thought are key issues but hardly spoken of by any pundits, of which I intended to do follow-up blogs. Since then I have seen The Economist and Wall Street Journal articles talked about the benefits of the tariff war to India. This has taken some thunder off this blog. However they are India-centric articles. My India Factor is China-centric.

In the previous blog on  The Taiwan Factor, I explained every US-China tariff war scenario has Taiwan smack in the middle of the conflict due to its coveted prowess in the semiconductor sector. Similarly, every scenario in the tariff conflict has India standing to gain substantially. This potential for India has great economic ramifications for the sub-continent and immense geopolitical stress for South Asia.

Let’s break it down:

1. India as a Key Beneficiary of Supply Chain Realignment:

Trump haters forget things fast. Long before Trump's tariffs, the US had already imposed tech bans and export controls against China --
Key aspects of restrictions imposed by the Biden admin:-
* Restrictions on advanced AI chips - an export ban on high-performance chips used in AI applications to China (chips that are 7 nm and below, this also affects Taiwanese TSMC).
* Bans on semiconductor manufacturing equipment -- this involves the EUV photolithographic machine of Dutch company ASDL).
* Controls on US persons - US individuals supporting China's semiconductor development needed licences.
* Restricts circumvention through third countries.
* Prohibits US involvement in China's sensitive tech sectors (semiconductors, quantum tech, AI).

Even before Trump took second term office, multinationals had already started to seek to diversify away from China to avoid economic and political risks. Apple, Foxconn, and other tech players have already shifted portions of their operations to India. Dell, HP, Cisco and Intel were already in talks with India.

These are the major US names that have manufacturing bases, or interlocked with Chinese manufacturers - Apple, Tesla, Microsoft, Qualcom, Amazon, Dell, Nike, Caterpillar, HP, Intel, GM, Ford, Levi, New Balance, Gap, Coca-Cola, Pepsico, Starbucks, 3M, Walmart, P&G, Colgate-Palmolive, Cisco,  etc. 

China not only faces the prospect of these big US brands relocating out of the country but its integrated supply chain magnifies the problem as foreign-owned support industries similarly reshore and local supply chain companies collapse.

The pull factor of India is its large English-speaking labour pool, a huge domestic market, a growing digital economy, improving infrastructure, government incentives (like PLI – Production Linked Incentive schemes), longstanding democratic system, and more importantly, a strategic alignment with Western interests, all of which generally presents a cultural and political proximity to the US.

2. Strategic implication:

India is positioned to capture part of the exodus of global manufacturing. It is building itself up not just in assembly, but in chip packaging, semiconductors, pharmaceuticals, and green tech—industries traditionally dominated by China.

The tariff war places India in a similar strategic moment as China was decades ago. If it capitalises well, through policy, improved infrastructure, reduces its regulatory complexity, and improve the ease of doing business, it could follow a similar economic growth trajectory, it could possibly become the next tech and manufacturing hub. 

 
India stands to grow stronger economically and technologically, raising its profile as an alternative to China in the Global South and among Western allies. 

3. Deep geopolitical tensions between Between China and India:

The two countries went to full-scale war once (Sino-Indian War 1962). There have been many military conflicts and skirmishes due to unsettled border disputes. The latest  was the deadly 2020 Galwan Valley skirmish which involved hand-to-hand combat. India views China's close ties with Pakistan as a direct security threat.

China-Pakistan Economic Corridor (CPEC) - Jammu & Kashmir are disputed territories between India and Pakistan. CPEC runs through Gilgit-Baltistan, a region in Jammu & Kashmir. India sees this a violation of sovereignty, of China trying to establish a permanent presence in Pakistan-administered part of Kashmir. Just a few days ago, an Islamist terrorist attack on Indian tourists in India-administered Kashmir where 26 non--Muslim tourists were singled out and shot dead in cold blood. India has always blamed Pakistan of sheltering Islamist Kashmirish terrorists on their side of the border.. This attack was the last straw as India chose to punish Pakistan by suspending a treaty for sharing the distribution of water from the Indus River. Pakistan has called this an act of war. Tension is developing.

China-Pakistan military co-operation - China is Pakistan's largest arms supplier and a key military partner. Joint projects include JF-17 fighter jets, naval systems and missile systems. India sees this as tilting the regional military balance.

Nuclear axis - China helped Pakistan develop nuclear weapons capability in the 1980s/90s. 

Diplomatic coordination - China and Pakistan are aligned in various international forums to block or criticise India on various issues,

Encirclement and strategic depth - 

India sees itself boxed-in. To the North-West lies arch enemy Pakistan, a friend of China. to the North East, China itself. To the south, China has projected its naval presence in the Indian Ocean, a maritime trade passage critical for both India and China. China's navy has a presence in Pakistan's Gwadar Port, and in Sri Lanka the Hambantota Port is leased to China for 99 years as a debt repayment.  Both these ports have hosted Chinese naval and dual use research vessels.

String of Pearls strategy of China - This is China's broader strategy of a network of military and commercial facilities in the Indian Ocean Region. India sees this as an intrusion into its traditional sphere of influence. For centuries the Maldives Islands have been an appendage of the Indian economy. But since joining the Belt and Road Initiative, substantial Chinese investments have poured into the islands. Just like Sri Lanka, Maldives had fallen into the Chinese debt trap. Its co-operation with China went into a higher gear when Marxist President Mohd Muizzu took office in 2023. The following year China and Maldives signed a Defence Agreement with China providing weapons and training to Maldivian forces.

In 2025 comes real trouble. Maldives claims the Chavos Archipelago. The Dutch first arrived at the uninhabited Chavos in 1638 but gave it up by 1710. French took possession in 1715 and brought enslaved people from Africa and Madagascar to work there. The French administered Chavos together with Mauritius, both of which were ceded to UK in 1814. In 1965 UK detached Chavos from Mauritius and created the British Indian Ocean Territory which was deemed illegal under international law. UK ceded independence to Mauritius in 1965 and continued to administer Chavos to this day as a BIOT.
 

In 2010 Maldives submitted a claim to the UN Commission on the Limits of the Continental Shelf (CLCS) for an extended continental shelf, which overlapped with Chavos. This claim was for maritime rights, not sovereignty over the islands. President Miuzzu now claims sovereignty on Chavos from UK.

The sovereignty of Chavos today is unresolved. UK has "de facto" sovereignty as they administer it. Mauritius has "de jure" sovereignty, legally recognised by UN and ICIJ. For reason not yet made public, UK seems willing to accede Chavos to the claims of Maldives.

There is no doubt China is pulling the string for the Maldives' claim. The reason is obvious. One of the small islands in the Chavos Archipelago group is Diego Garcia. It is where the US has their huge military base. Diego Garcia base is of utmost strategic importance to US. It offers a vantage point for operations across the Middle East, Africa and Asia. The base supports a wide range of military assets like long-range bombers, aerial refueling takers, which enhances US rapid deployment capabilities. This base plays crucial roles in operations in wars in Iraq and Afghanistan, as well as ongoing missions against the Houthis in Yemen. 

It is in India's national security interest to have Diego Garcia remain under UK and the US. .

4. India and Quad :

The Quadrilateral Security Dialogue (Quad) was formed in 2007 as a strategic forum involving US, Japan, Australia and India. It arose from the collaborative efforts of these 4 nations in the 2004 Indian Ocean tsunami where they coordinated humanitarian efforts. It had one meeting in 2007 and then went into slumber due to Australia's concerns of potential diplomatic tensions with China. The Quad was revived in 2017 due to growing concerns over China's assertiveness in the Indo-Pacific region. The Quad facilitates joint naval exercises and info sharing to bolster maritime security ensuring freedom of navigation and overflight in the Indo-Pacific. The Quad offers India avenues for cooperation in infra development, digital connectivity, and emerging technologies. 

 5. Does India’s Rise Soften China’s Stance Toward the US?

India's industrial development has been stuck in its track for 70 years with manufacturing sector today taking up only 18% of GDP, unchanged since 1960. A combination of infrastructure deficits, financing constraints, regulatory rigidity, high input costs, and services oriented growth model has kept India's industrial base from achieving the scale seen in other emerging economies.

China is in a dilemma. Its intransigence in the tariff war will drive more manufacturing and capital to India. By their very  own act, China might well provide the impetus for India to becoming an economic power house, that is, assuming the Indians can brush up their act with improved infrastructure, improved bureaucracy and make it easier to do business.

"Economic might bolsters a country's capacity to protect itself, and national security forsters a positive environment for growth."
Rajeswari Pillai Rajakopalan

India's emergence as a manufacturing powerhouse, which comes with it economic leverage, would reshape its border dynamics with China and influence in the Indo-Pacific maritime seas, something that China would vehemently want to prevent. 

Conclusion:

The India Factor in the US-China tariff war is a complex and strategically significant element that touches on geoeconomics, supply chains, diplomacy, and long-term balance-of-power calculations. 

With a low industrial output and a per capita ranked about 143rd in the world, India has no economic clout in Beijing's chessboard. By taking a hardcore position against US tariffs, China risks helping India on its way to manufacturing might and economic leverage. Thus China may end up loosing influence on two fronts - economically and geopolitically. The Indian Factor forces China to adopt a more calibrated approach instead of an aggressive confrontation with the US. China will tone down its adversarial approach, balance confrontation and engagement to avoid isolating itself and feeding the rise of its nemesis. This is not a capitulation to US but a matter of staying in the game.  

For Washington, cultivating India as a manufacturing and geopolitical counterweight to China fits both economic and security objectives.

VP Vance's visit to Delhi April 21-24 was officially a trade and diplomacy mission. No doubt analysts in Beijing will see it as a strong message to China of US-India cementing relationship and encouraging manufacturers to relocate to the Indian sub-continent.

For Beijing, therefore, the challenge is to avoid trade-war tactics that inadvertently empower India, and at the same time deepen India’s strategic integration with the West.

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