Modi Can’t Afford to Cut Ties with Trump

India's Prime Minister Modi's attendance at the Shanghai Cooperation Organization summit with China and Russia, following recent U.S. tariff impositions, created optics of a potential pivot away from the U.S. However, the analysis suggests this move is opportunistic rather than a fundamental realignment. India's substantial economic ties with the U.S., with annual exports nearing $90 billion, far outweigh trade with SCO members, and ongoing geopolitical rivalries with China preclude a lasting shift. India's economic and security imperatives will likely drive a rapprochement with the U.S., indicating the summit does not signify the formation of a new anti-U.S. alliance.

Analysis

Prime Minister Modi's attendance at the Shanghai Cooperation Organization (SCO) summit alongside Chinese and Russian leaders, following the U.S. imposition of 50% tariffs on Indian exports, should be viewed as a tactical maneuver rather than a fundamental strategic pivot. The underlying economic and geopolitical realities constrain India from aligning with a China-led bloc. Economically, India's exports to the U.S. are approaching $90 billion annually, a figure that far surpasses its trade with all SCO members combined, which are more interested in selling to India than buying from it. Geopolitically, a deep-seated rivalry persists between India and China, underscored by Beijing's support for Pakistan and ongoing territorial disputes, making a genuine alliance untenable. Therefore, the visit is best interpreted as an opportunistic signal of displeasure towards Washington and an attempt to gain leverage. The most probable outcome remains a rapprochement with the U.S., as India's economic health and national security are existentially tied to its relationship with Washington and its allies, a reality that Chinese leadership likely recognizes.

Key Decisions for Investors

• Investors should treat the narrative of an emerging India-China-Russia axis with skepticism and instead monitor for signs of a U.S.-India rapprochement, which the underlying economic dependencies make highly probable.
• Focus on the U.S.-India tariff negotiations as the primary catalyst; any de-escalation or resolution will likely reduce geopolitical risk premium for assets exposed to the Indian economy and U.S.-India trade corridors.
• Avoid overweighting positions based on the summit's optics, as India's structural economic ($90bn in U.S. exports) and security alignment with the West remains the dominant long-term factor over this temporary political posturing.