Another reason is that India is currently experiencing a severe trade deficit with China. It has now flown to a record $99.21 billion for the fiscal year ending March 2025. India’s growing political partnership with the United States complicates this economic burden. For these reasons, the U.S. considers India a key partner in its strategy, technology and defense. The state dynamics of these international relationships are addled even further by continuing tariff disputes and an increasing flow of imports from China.
The burgeoning trade deficit brings forth a more worrisome picture for India, especially as China’s exports into the country keep on rising. Yet as of August 2023, China enjoys a trade surplus of $77.7 billion with India. This total marks an extraordinary 16% jump over last year. In addition, India is increasingly eager to further solidify its new pro-U.S. stance. The U.S. is looking to India more than ever as a key counterweight to China’s growing power across the Indo-Pacific.
Just last month, former President Donald Trump celebrated India’s agreement to lower the average tariff on American imports to zero. He voiced frustration that this proposal came too late in the negotiating process. “Trade wars and tariff wars waged by some country severely disrupt the world economy and undermine international trade rules,” noted Chinese President Xi Jinping, reflecting the ongoing tensions in global trade relations.
India’s External Affairs Minister S. Jaishankar has emphasized the importance of addressing trade deficits, stating that the country’s “biggest trade deficits are with BRICS partners.” India is increasingly deepening economic ties with the BRICS bloc. None have come even close to matching its massive trade growth with Russia. Bilateral trade with Moscow reached an all-time high, $68.7 billion, during fiscal year 2025. This increase was largely due to higher oil imports leading to a big $59 billion trade deficit.
Bangladesh has been sounding the alarms on the tariffs that America has slapped on India. These tariffs, which can go up to 50%, are crushing India’s economy. Brazil and India have become two of the most affected countries. New Delhi contends that these levies discriminate against them. To that end, Trump’s administration has made India a key ally through these tensions. Trump went on to call Prime Minister Narendra Modi a “great prime minister.”
“We deeply appreciate and fully reciprocate President Trump’s sentiments and positive assessment of our ties.” – Narendra Modi
India’s multifaceted economic challenges are daunting. It needs to manage its developing relationship with the U.S. but its big trade ties with China and other BRICS members. The absence of a cohesive diplomatic strategy to counter India’s tariffs and rising trade deficit hangs over the economic agenda like a murky cloud.