Trump’s Policies Shake Up Foreign Relations. India Stands to Gain.

President Donald Trump has a close relationship with Indian Prime Minister Narendra Modi. (Andrew Harnik/Getty Images)

When friendships go awry, there is often a rush to find new cliques. That is playing out on the global stage as President Donald Trump’s approach to trade and international relations pushes India and China to try harder to rebuild their relationship.

As Trump took office, India looked to be in a good position. Prime Minister Narendra Modi has a close relationship with Trump and Indian officials made early efforts to create at least a framework for some sort of trade deal.

But the relationship has run into trouble, in part because India has been unwilling to deliver concessions related to its critical agricultural sector. The U.S. imposed 25% tariffs on India, effective Aug. 7.

An additional 25%, meant to penalize New Delhi for buying Russian oil, begins Aug. 27 as Trump presses Russian President Vladimir Putin to end the war in Ukraine. So far, the U.S. hasn’t penalized China, the biggest buyer of Russian oil, as the two sides continue a fragile truce.

“The Indians were willing to reduce the amounts they had been purchasing in working-level talks on trade,” said Nisha Biswal, a senior advisor at the geopolitical consultancy The Asia Group who previously held senior roles in the Chamber of Commerce and State Departments focusing on the region.

“They were stunned by the [Trump administration’s] very public assault on this and that closed down the space for India to come to the table for a compromise.”

India hasn’t wasted much time looking for ways to diversify. On Tuesday, India and China moved to revive a relationship that was damaged by a 2020 border clash between the strategic rivals.

Chinese Foreign Minister Wang Yi visited Delhi for meetings with his Indian counterparts, resulting in agreements for the two countries to resume direct flights and increase trade and investment. Further meetings are planned. Modi intends to visit China for the first time in seven years at the end of the month.

“While a full and immediate normalization of relations is probably too much to hope for, India appears to have made a tactical decision to re-engage with its strategic foe,” says Gavekal Research analyst Tom Miller, who sees the moves as positive for India.

The MSCI India exchange-traded fund is up only 2% so far this year, giving up some of the gains it has made in recent years. It is lagging behind China, where enthusiasm about DeepSeek’s artificial-intelligence models is attracting investment cash from abroad. The iShares MSCI China ETF has gained 28% while the iShares MSCI Emerging Markets ETF is up almost 20%.

Indian businesses have been pushing for a thawing in relations with China. Media reports say that Adani Group’s Gautam Adani and Reliance Industries’ Mukesh Ambani have been looking for partnerships with Chinese electric vehicle and battery makers to bring the technology to India.

Any deals with the prominent Chinese battery maker CATL, or with the EV manufacturer BYD, would face considerable political friction. Indian officials have been reluctant to approve large investments from Chinese companies and have denied visas to BYD’s Indian business heads.

Meanwhile, Chinese officials are wary of sharing technology with a potential manufacturing rival. Miller says that just months ago, officials told Foxconn, the company that produces iPhones for Apple, to pull its Chinese staff out of India.

If the thaw deepens, Miller sees India as having the most to gain. He says closer ties would help it to become a global export hub and allow Indian companies learn from their Chinese rivals to eventually become more self-sufficient, as China did with companies in the West after it joined the World Trade Organization in 2001.

Although the countries will continue to be strategic rivals, limiting how close they can get, the extent of the thaw may depend on Trump. If the secondary tariffs related to India’s purchase of oil go into effect on Aug. 27, analysts see India looking to speed up the warming of relations.

Biswal sees India’s efforts to rebuild China ties as hedging after making a long strategic bet on the U.S. “If it can no longer count on the U.S., not just on trade but also the strategic and security front, then it needs to come to some agreement and accommodation with China,” she says.

It’s a recalculation others are contemplating too. Biswal said one of the major points of discussion at the Asean and Asia forum she attended earlier this month in Singapore was a new world order minus the U.S.

“While in the past, China was an economic partner, the big hedge many countries had on was having the U.S. act as a stable security provider that would prevent Chinese overreach,” she adds. “Today, they see the U.S. as posing the greater risk and China being the more stable actor. They are looking to figure out how to make their agreements and accommodations with China.

It isn’t just in Asia. In May, Brazil signed a pledge with China to “defend trade and multilateralism.” Last month, Beijing said it would further strengthen economic ties, including cooperating on aviation, just days before Trump’s 50% tariff on Brazil went into effect.

In Europe, Trump’s approach to the Russia-Ukraine war has created a united front among a host of countries. Seven European leaders showed up at the White House this week to support Ukrainian President Volodymyr as he discussed the path toward a resolution with Trump.

One possibility floated by the analysts at Yardeni Associates is the creation of a free-trade zone among the so-called Brics. The group, which started with Brazil, Russia, India, China, and South Africa, has now expanded to include Egypt, Ethiopia, Saudi Arabia, the United Arab Emirates, and others.

Such a trade bloc would take time and could also encounter a backlash from Washington. Trump has warned several times about Brics-led efforts to move away from the U.S.

Biswal is keeping tabs on the Shanghai Cooperation Organization summit at the end of the month. She is watching to see if there are some sort of talks between China, India, and Russia about each country’s red-line issues and where they could cooperate.

Write to Reshma Kapadia at reshma.kapadia@barrons.com