15 June 2020 in Galwan Valley, Ladakh. Indian and Chinese soldiers use clubs and iron rods in a brutal, medieval, hand-to-hand combat.
“Honouring” an agreed protocol, neither army fires at the enemy. After going several decades without a single fatality, the fraught border is littered with 20 battered corpses of Indian bravehearts. China gives an ambivalent count of four deaths on their side. A fragile peace between two of the most populous nations, accounting for over 40 percent of all human beings on earth, is shattered.
Eschewing a military escalation, India retaliates with economic weapons. A sharply worded Press Note 3 virtually bans new investments from China—without naming it, the restriction is slapped on countries “sharing a land border with India”. Mergers, acquisitions, venture capital deals, and strategic foreign direct investment (FDI) transactions are aborted.
Over 300 Chinese apps, including the powerful TikTok and Alipay, are banned. Chinese giants are thwarted from bidding for huge infrastructure, telecoms, and power equipment tenders.
Chinese vendors are outlawed from 5G telecom trials. Chinese experts and critical personnel fail to get visas. India rolls out heavy commercial artillery to hurt the Dragon’s burgeoning interests in the world’s fastest growing large economy. An economic chill sets in.
Trump Shocks, Awes & Inverts the Eastern Hemisphere
But often, the unexpected happens.
President Donald J Trump stuns and inverts America’s strategic doctrine within weeks of beginning his second term. China is acknowledged and cuddled as a “near peer”. And India, long nurtured as a natural ally/bulwark against Chinese bullying in Asia, is exiled into a tariff arctic. We get slapped with a punitive 50 percent levy, garnished with daily rebukes on Truth Social.
Trump seems to relish hurling India under a Sino-Pakistan truck. Indian Americans, once the model minority, become the target of MAGA-hate and scorn.
A bewildered, shell-shocked India was forced to reassess her friends and adversaries. The Indian Prime Minister suppressed his obvious anger and embarked on a remedial photo op. After skipping seven China-led Shanghai Cooperation Organisation (SCO) Summits, Modi landed in Tianjin in late 2025 to beaming hugs and handshakes with Presidents Xi and Putin of China and Russia. The bonhomie among them was choreographed to create a “counter-America triad” and send that signal directly to the White House.
After the imagery, India has now begun to seriously fix the economic rift with China. One by one, the post-Galwan concussions are being repaired. Direct flights have resumed from October 2025. Chinese technicians, critical for manufacturing under the production-linked incentive schemes (PLIs), are getting visas. Some of the certification and non-tariff barriers are being quietly eased. FDI approvals are falling on sympathetic ears.
There’s also talk of un-banning a few apps. And there are loud whispers of re-allowing Chinese companies to bid for government contracts. Hindi and Chini (colloquial for Indians and Chinese) are becoming dhandha bhai bhais (business buddies) again!
Crushing Trade Deficit & Border DisputeHow to Handle These Behemoths?
But is that enough? Conceded, these are healing band-aids, but will they create a healthy, sustained Sino-Indian relationship? Not quite. Because these tactical concessions do little to address the two big elephants in the room—a ballooning trade deficit that has crossed $100 bn and is threatening to overwhelm a dangerously one-sided China-India trade; AND simmering, colonial-era disputes across a long, treacherous 4000-km border.
Let’s begin with the trade conundrum.
Does the remedy lie in opening the floodgates to Chinese FDI to create massive import substitution, ie factories are set up in India to manufacture most of the goods that get imported from China?
It’s a seductive policy move, but alas, can be a superficial, even a regressive, option. Chinese companies could well erect giant shopfloors here to assemble the final goods but continue to import critical components and raw materials. In which case, there may not be much of a dent in the trade deficit. And if these Chinese assemblers repatriate dollops of dollars as royalties and dividends—and/or sell huge amounts of stock in a local listing—then a merchandise trade deficit would simply morph into a current and capital account outflow!
So, what’s an effective antidote to India’s fixation with Chinese imports? Most critically, we should look beyond the final imported goods to create deep local capabilities in manufacturing the components and intermediate elements that make up the final product. And we should build these strengths by inducing global leaders from Japan, Taiwan, Korea, and the European Union (EU) to set up industrial shops here.
For example, if we want to shed electronic imports from China, we should seduce Panasonic (Japan) to make battery ecosystems, Samsung (Korea) to manufacture camera modules, Delta Electronics (Taiwan) to make chargers, and Bosch (EU) to churn out sensors. This is merely an illustrative list to crystallise the argument.
Similarly, if we want to jettison dependence on Chinese solar equipment, we need to woo the global manufacturers of silver paste alternatives, EVA/back-sheet films, junction boxes, inverters, transformers, and switchgear. Do what it takes—create special PLIs—to welcome these giants to invest in India. Such a concerted move to manufacture critical raw materials, components, intermediates, and finished goods could neutralise the current trade disadvantage against China.
What about the border dispute? Now that’s a politically nettlesome problem. Neither country can overtly cede territory to the other. No political leader on either side can hope to survive such a bold concession.
But several actions can be taken to build trust without “bartering sovereignty”. By creating patrol limits, buffer zones, no-build/no-faceoff areas, and demilitarisation protocols.
By resolving problems in joint ecological zones (glaciers, rivers), coordinating disaster management actions, and regulating grazing rights, to name a few. Both countries need to accept an honourable status quo, ie, freeze the dispute without trying for grand bargains to permanently settle it. Discretion would be the better part of valour!