India-China Trade War: Decoding the $100 Billion Deficit & Strategic Shifts

The Tightrope Walk: Trade vs. Security
India’s trade relationship with China is a high-stakes balancing act. While bilateral trade hit $127.7 billion in FY2024-25 (making China India’s #2 partner), it hides a critical flaw: a record $99.2 billion trade deficit. This gap exposes India’s risky dependence on Chinese imports – especially in tech, pharmaceuticals, and electronics.

Why the “Managed Rivalry” Strategy?
India now navigates a “managed rivalry”: engaging economically while countering security threats. China’s backing of Pakistan and strategic dominance in South Asia forced India’s hand. The response? A two-pronged attack:
Diversify Globally: Forge alliances with the US, Japan, and ASEAN.
Boost Domestic Manufacturing: Turbocharge “Make in India” via PLI schemes.
The PLI Game-Changer
The Production-Linked Incentive (PLI) scheme (active in 14 sectors) is India’s masterstroke. It lured $18.7 billion in investments, turning India into the world’s 2nd-largest smartphone maker. In 2024–25, smartphone exports surged 55% to $24.1 billion – now India’s top export item!

Trade Allies to the Rescue
USA: Became India’s #1 goods-trade partner ($131.8 billion) with tech collaborations via iCET (semiconductors, AI, space).
Japan: 80% of Japanese firms in India plan expansion. The SCRI initiative with Japan/Australia builds rare-earth and electronics hubs.
ASEAN: $110 billion trade ties are strengthening with new pacts to cut trade barriers.

The Road Ahead
India’s “China-plus-one” strategy isn’t just about reducing imports – it’s about becoming an export powerhouse in high-value sectors. The goal? Redirect global supply chains through India, not around it.

Why is This Important for Exams?
Questions on India-China trade, the PLI scheme, and trade deficits feature heavily in NID, NIFT, SSC, PSC GK sections. Exams test awareness of bilateral ties, economic policies, and current affairs – topics directly impacting India’s design and innovation landscape.


Sample Questions & Answers:
Q: What drove India’s $99.2B trade deficit with China in FY2024-25?
A: Heavy imports of electronics, tech components, and pharmaceuticals.
Q: How does the PLI scheme reduce India’s reliance on China?
A: It incentivizes domestic manufacturing in 14 sectors (like electronics), cutting import needs.
Q: Name India’s key trade ally under the “China-plus-one” strategy.
*A: The USA – now India’s largest goods-trade partner ($131.8B).*
Q: What is the SCRI initiative’s focus?
A: Building resilient supply chains in electronics/batteries with Japan and Australia.
Q: Which sector saw 55% export growth under PLI in 2024-25?
A: Smartphones – hitting $24.1B and becoming India’s top export.


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