Devina Mehra: Why the US plays fast and loose with India but not China

The article posits that the US's differentiated trade approach towards India versus China is driven by relative economic and strategic power, not fairness. China has systematically built significant leverage by controlling critical technologies, strategic materials (e.g., rare earths), global supply chains, and dominating high-tech sectors like EVs and AI, supported by R&D investment estimated at 20-25 times India's. Conversely, India's substantially smaller economy and a widening trade deficit with China (from $37 billion to nearly $100 billion over a decade) leave it with less bargaining power, underscoring that international trade dynamics operate on principles of strength, compelling India to prioritize its long-term strategic interests.

Analysis

The disparity in U.S. trade policy towards India versus China is a direct reflection of relative economic and strategic leverage, not principles of fairness. China has methodically cultivated significant bargaining power through a long-term strategy focused on controlling critical global supply chains, particularly in strategic materials like rare earths, and by establishing dominance in high-technology sectors. For instance, in the electric vehicle market, BYD's sales in the first half of 2025 surpassed the next four competitors combined, a period during which Tesla experienced a sales decline, with seven of the top ten EV brands now being Chinese. This technological ascendancy is fueled by a state-directed research and development budget estimated to be 20-25 times that of India's, with stated goals to spend 4-6% of GDP annually. In stark contrast, India's negotiating position is weakened by a substantially smaller economy and a structural trade imbalance with China, evidenced by its trade deficit expanding from approximately $37 billion to nearly $100 billion over the past decade. This fundamental power differential dictates the terms of international negotiations, suggesting India will continue to face perceived trade inequities until it can build comparable strategic and economic clout.

Key Decisions for Investors

• Investors should factor in the heightened geopolitical risk for India-exposed assets, as its weaker negotiating position relative to China may lead to unfavorable trade outcomes and increased market volatility.
• The pronounced market share gains by Chinese EV manufacturers at the expense of established players like Tesla signal a significant competitive shift, warranting a portfolio review of the global automotive sector to account for these changing dynamics.
• Assess portfolio exposure to companies heavily reliant on Chinese-controlled supply chains and raw materials, as this concentration represents a major operational and geopolitical risk.
• Consider long-term thematic investments in companies aligned with China's state-driven push for technological self-reliance, particularly in sectors like artificial intelligence, robotics, and semiconductors, which are receiving massive R&D funding.