US-China Relations: Current Dynamics and Implications for India

The US and China are undergoing a strategic recalibration characterized by cautious engagement alongside intensified competition, particularly since 2022. This shift is evident in renewed diplomatic dialogues, limited trade détente, and simultaneous rivalry in technology and security domains (US Department of State, 2024). India, situated at the intersection of these two powers, faces a complex geopolitical environment requiring adaptive foreign policy and economic strategies to protect its sovereignty and exploit emerging opportunities.

Constitutional and Institutional Framework Governing India’s Foreign Policy

Article 246 and Entry 10 of the Union List in the Constitution empower the Union Government to conduct foreign affairs exclusively. The Ministry of External Affairs (MEA), established under the Ministry of External Affairs Act, 1947, formulates and executes foreign policy. The Foreign Contribution (Regulation) Act, 2010 regulates funding related to foreign relations. The Supreme Court ruling in S.R. Bommai v. Union of India (1994) reinforced the primacy of the Union in foreign affairs, ensuring federal coherence despite India’s federal structure.

• MEA’s Policy Planning & Research Division analyzes geopolitical shifts to inform strategy.
• DPIIT manages FDI inflows and industrial policy, crucial for economic diplomacy.
• DGFT tracks trade data and implements trade policy adjustments.
• NITI Aayog provides strategic policy advice on economic and technological self-reliance.

Economic Interdependence and Strategic Challenges

India’s bilateral trade with the US reached approximately $119 billion in 2023, with the US as the largest FDI source, contributing $60 billion (Ministry of Commerce, DPIIT Annual Report, 2024). Conversely, India-China trade stood at $149 billion but with a significant $57 billion trade deficit favoring China (DGFT, 2024). This economic asymmetry creates vulnerabilities amid US-China tensions.

• US-China trade war led to a 15% increase in India’s exports to the US in 2022 (World Bank Data, 2023), demonstrating India’s potential to capture market share amid decoupling.
• India’s defence modernization budget of ₹2.5 lakh crore reflects strategic prioritization amid regional tensions (Union Budget, 2024-25).
• India’s negligible share in global semiconductor supply chains (ICRIER Report, 2023) highlights technological dependence risks.

Strategic Autonomy Versus Alignment: India's Balancing Act

India maintains a policy of strategic autonomy, balancing relations with both the US and China without formal alliances. This contrasts with countries like Australia, which have aligned more explicitly with the US-led Quad, resulting in enhanced security cooperation but increased economic vulnerabilities to China.

• India’s calibrated approach preserves diplomatic flexibility but limits leverage to counterbalance China decisively.
• Australia’s alignment has led to short-term security gains but exposed it to economic coercion by China.

Critical Gaps in India’s Indo-Pacific Strategy and Technological Self-Reliance

India lacks a comprehensive, codified Indo-Pacific strategy, which constrains coherent engagement with regional multilateral frameworks and limits strategic clarity. Additionally, India’s underdeveloped technological base, especially in semiconductors and critical supply chains, restricts its ability to capitalize fully on US-China decoupling and diversify its economic dependencies.

• India’s semiconductor market share is below 1% despite a $60 billion global market, reflecting supply chain vulnerabilities (ICRIER Report, 2023).
• Absence of a formal Indo-Pacific policy reduces India’s diplomatic predictability and strategic signalling.
• Limited integration with US-led technology alliances constrains access to cutting-edge innovation.

Five Strategic Imperatives for India Amid US-China Recalibration

1. Strengthen Economic Diversification: Reduce trade deficit with China by promoting indigenous manufacturing and expanding trade with the US and other partners.
2. Develop a Codified Indo-Pacific Strategy: Formulate and publicly articulate a comprehensive Indo-Pacific policy to enhance strategic clarity and multilateral engagement.
3. Enhance Technological Self-Reliance: Invest in semiconductor manufacturing and critical supply chains to reduce dependence on China and leverage US technology partnerships.
4. Maintain Strategic Autonomy: Balance relations with the US and China to preserve diplomatic flexibility while deepening security cooperation selectively.
5. Boost Defence Modernization: Utilize the ₹2.5 lakh crore defence budget to upgrade capabilities in line with evolving regional threats and alliance dynamics.

Way Forward: Leveraging Geopolitical Flux for National Advantage

India must proactively adapt to the evolving US-China relationship by institutionalizing strategic foresight within the MEA and allied bodies. Economic policies should prioritize reducing strategic vulnerabilities through diversification and technology acquisition. Diplomatic efforts must balance engagement and deterrence, preserving India’s autonomy while capitalizing on shifting alliances. Defence modernization should align with emerging threats and interoperability with Quad partners without compromising India’s independent strategic calculus.