(Bloomberg) — India and China are restoring economic links strained by a deadly 2020 border clash, the latest sign Prime Minister Narendra Modi is drawing closer to the BRICS countries after US President Donald Trump hit the South Asian nation with a 50% tariff.
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Modi’s latest move is to resume direct flights with China as soon as next month, said people familiar with the negotiations who asked for anonymity to discuss private matters. The deal could be formally announced when Modi is expected to head to China for the first time in seven years and meet leader Xi Jinping at the Shanghai Cooperation Organisation held in Tianjin from Aug. 31, the people said.
Flights were suspended during the Covid-19 pandemic, which coincided with a sharp decline in relations between the nuclear-armed neighbors after border clashes in the Himalayas killed 20 Indian soldiers and an unknown number of Chinese troops.
Modi’s economic calculus was fundamentally altered this month when Trump doubled tariffs on Indian goods to 50% as a penalty for its purchases of Russian oil. The US president’s remarks that India’s economy was “dead” and its tariff barriers “obnoxious” further strained relations.
The blow from India’s largest trading partner hit hard, especially after Modi had lavished praise on Trump and was among the first foreign leaders to visit after his return to the White House.
Henry Wang, president of the Center for China and Globalization think tank in Beijing, said relations between India and China are in an “up cycle,” and as leaders of the Global South, “they have to really speak to each other.”
“Trump’s tariff war on India has made India realize that they have to maintain some kind of strategic autonomy and strategic independence,” he said.
China, also a prime target in Trump’s trade wars, has shown signs it’s ready for a thaw. This month, it eased curbs on urea shipments to India — the world’s largest importer of the fertilizer.
Although initial volumes are small, the trade could expand, easing global shortages and prices. China relaxed the ban in June but had maintained restrictions on India until now.
The Adani Group is exploring a tieup with Chinese EV giant BYD Co. that would allow billionaire Gautam Adani’s conglomerate to manufacture batteries in India and extend its push into clean energy, according to people familiar with the matter.
Modi’s government recently allowed tourist visas for Chinese nationals after years of curbs. China is India’s second-largest trade partner after the US, and India needs key inputs from China to develop its manufacturing base.
While there may be a thaw, the two Asian powers are not likely to restore full trust overnight. They have seen each other as rivals for years and friction increased a few months ago when China supplied weapons and intelligence to Pakistan in its recent military dispute with India.
WATCH: Narendra Modi strikes a defiant tone in response to Donald Trump’s threats over India’s Russian oil purchases. Here’s why it’s a delicate balancing act.Source: Bloomberg
Part of Trump’s recent anger toward New Delhi comes from India denying his claims that his mediation helped defuse tensions with Pakistan. Modi also challenged those assertions directly in a call with Trump in June. India saw a shift in tone from the White House after that, according to the officials in New Delhi.
Modi is also strengthening ties with Brazil and Russia, fellow BRICS founding members. In August, he invited President Vladimir Putin to visit India as relations with the US soured.
Trump is frustrated with India’s continued imports of discounted Russian oil, which help fund the Kremlin’s war in Ukraine. Modi has shown no signs of backing down, and his government signed agreements with Moscow this month to deepen economic cooperation.
Modi has also talked trade and the imposition of unilateral tariffs against their nations with Brazilian President Luiz Inacio Lula da Silva. Bolstering commercial ties between Brazil and India was a key topic of Modi’s visit to Brasilia in July. During the call in early August, Lula and Modi also agreed to expand India’s trade deal with Mercosur, the South American customs union that includes Brazil.
The US has long courted India as a counterbalance to China in geopolitics but with Trump’s trade wars, Beijing and New Delhi are finding common ground. Xu Feihong, China’s ambassador to India, has offered Modi moral support over the tariffs.
“Give the bully an inch, he will take a mile,” Xu last week wrote on X over a quote from Chinese Foreign Minister Wang Yi denouncing the use of tariffs “as a weapon to suppress other countries.”
–With assistance from Dan Strumpf, Sudhi Ranjan Sen, Mihir Mishra, Anthony Palazzo and Colum Murphy.
(Updates with details on Modi’s visit to China in second paragraph.)
