The bad news (or non-news) is that India has major problems with its US relationship.
The good news: much of the world also has “America problems.” This includes formerly close allies like Canada, which recently embarked on a renewed relationship with adversary China.
Over the last 30 years, and especially after the Galwan clashes in 2020, India’s strategic posture has largely aligned with the United States, while its economic relationship with China has been under strain. Yet as India finds itself suffering economically from US policy actions – steep tariffs, virtual stoppage of H1B visas, and more – a pragmatic case is emerging for New Delhi to return to its neutrality roots. With Beijing offering a diplomatic olive branch, including renewed border-mechanism agreements and the promise of large-scale investment, India arguably stands at a strategic inflection point. A recalibration of India’s “multi-alignment” between China and the US is therefore both timely and necessary.
Economic headwinds from the US
India’s export sector has been hit by not just the US tariffs but by a weakness in US buying power as America’s GDP crawls at 2% (with half of that attributed to AI data centres). Since August, tariffs on most Indian goods have hit 50%. Areas that have been untouched – like semi-conductors and pharmaceuticals – have still dropped due to weaker demand, leading to a 37.5% drop in exports. At the same time, India’s IT-services sector has been rocked by the $100,000 fee on new H-1B visa petitions, a measure that threatens the business model of Indian firms which rely heavily on U.S. work-permits. All this said, however, India’s growth in 2025 is projected to be 6.6% – higher than its growth of 6.4% in 2024, indicating that the net impact of the tariffs and America’s own weakness is minimal.
Pragmatism in dealings with China
At precisely this moment of economic pressure, China is extending a more conciliatory posture toward India. Following years of tense border stand-offs, Beijing and New Delhi recently agreed on a return to the pre-2020 status quo of patrolling rights (although Chinese construction during its period of occupation may not be demolished). Additionally, China has also offered to build manufacturing, supply-chains and jobs in India that India has long sought. If this can be done with verifiable technology transfer and national security safeguards, it will be the ultimate peace dividend. It will not only enable India to reduce its deficit with China but also export to the rest of the world, which buys Chinese cars and heavy machinery.
Net-net, as a senior member of the Indian intelligentsia (who chooses to remain anonymous) puts it euphemistically, “Doklam, Galwan and Sindoor did not help relations with China.” At the same time, if the “US fixates on G2”, then it is clear that “nothing is going in favour of India”.
Hence, three arguments support the case for an Indian rebalance:
- Over-reliance on one partner is risky. India’s close alignment has shown its vulnerabilities. When US policy turned adverse, India lacked alternative partners.
- Economic leverage from China still exists. Despite border tensions, China remained a significant trade partner. “We cannot live without China today”, states the expert flatly. If India treats the relationship as purely adversarial, we forgo manufacturing and technology growth which Beijing is willing to supply today – and may not tomorrow.
- Context demands flexibility. We need to recognise that neither the US nor China (nor Russia) offer a perfect partnership. It is their competition that helps us get the best deal.
Rebalancing does not mean strategic naiveté. India can engage China without sacrificing security safeguards. For example, Chinese firms could be permitted but outside defense or telecom. It could include local-partner mandates, audited technology-transfer and delayed repatriation of profits to guard against data or control risks. These tools allow India to harness economic benefit while limiting vulnerability.
Any economic engagement with China should rest on a credible border-mechanism. A stable border reduces the chance that economic gains will be undone by military flare-ups. That stability enhances the attractiveness of the China option for India, making the recalibration more credible. A complete resolution, of course, should be the goal.
The case for strategic recalibration
India’s current alignment tilted heavily toward the US has served the country well but now, the calculus has shifted: rising tariffs, visa shocks and daily uncertainty mean that India must revisit its foreign policy. China, having offered a pathway to normalisation, provides a strategic alternative. By rebalancing its multi-alignment and gradually deepening engagement with China while maintaining ties with the US, India can protect its economic interests, preserve strategic autonomy and hedge its external dependencies.
The time is ripe for India to recalibrate how it positions itself between the world’s two great powers, ensuring that its foreign-policy with regards to India-China-US relations strategy aligns not just with security imperatives but also with its economic vitality.
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