Trump's trade war speeds up thaw in China-India ties

Long-time rivals enjoy closer trade relations, but observers question whether bond can last

NEW DELHI • President Donald Trump's moves to protect United States trade interests are creating unusual bedfellows in Asia.

India and China - both longstanding economic and strategic rivals - are seeing a thaw in relations less than a year after the most serious border flare-up since a war in 1962 threatened ties between the two Asian giants.

Since last month, China has made it easier for India to export non-Basmati rice, removed import duties on anti-cancer drugs and agreed to share data that predicts river flows between the two countries during the flood season.

Chinese President Xi Jinping and Indian Prime Minister Narendra Modi have met twice since April, pledging to strengthen bilateral ties. Driving the marriage of convenience is Mr Trump's unpredictable policymaking.

The US has ratcheted up global trade tensions with tariff threats against China, Canada, Mexico and the European Union, prompting several to retaliate. Last week, India also joined the fray, raising duties on a slew of US imports.

"China understands that this trade war situation isn't going to end in a few days or even months," said Mr Bipul Chatterjee, executive director of an India-based trade think-tank.

"They wouldn't want to open more than one battle front. The focus is now on confronting the US."

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China understands that this trade war situation isn't going to end in a few days or even months. They wouldn't want to open more than one battle front. The focus is now on confronting the US.

MR BIPUL CHATTERJEE, executive director of an India-based trade think-tank.

The question many observers are asking is whether China's cosier relationship with India can endure.

The world's two most populous nations have had a tense history, marked by border disputes and China's growing economic influence in South Asia.

Closer trade ties seem incongruous less than a year after troops from the two nuclear-armed nations faced off in a dispute in the remote Doklam plateau between India, Bhutan and Tibet, triggered by China's attempt to build a road there.

Tension eased after the two countries agreed to an "expeditious disengagement" of troops from the area last August, with Mr Modi and Mr Xi later pledging to strengthen communication between their respective armies at an informal summit in April.

India's two-way trade with China touched nearly US$90 billion (S$123.2 billion) last year, making it the largest commercial partner of the South Asian economy.

The bilateral trade gap was US$63 billion - India's largest - mainly due to imports of Chinese-made heavy machinery, telecoms equipment and home appliances.

Mr Modi's "Make in India" initiative to foster local manufacturing struggles in the face of low-priced imports from China. At the same time, India's cost-competitive software service firms battle for access to the Chinese market.

To curb the shortfall - and counter to China's easing of trade barriers - India boosted tariffs on electronic goods, such as mobile phones, TVs and microwave ovens last year.

Another sore point in the bilateral relationship has been China's ambitious global infrastructure plans, which include projects in the South Asian giant's Indian Ocean backyard that domestic analysts worry have a strategic dimension.

Under the Belt and Road Initiative, China has financed ports and roads from Myanmar to Sri Lanka to Pakistan. India is one of the few holdouts globally.

Drawing the most alarm for India is the US$60 billion China-Pakistan Economic Corridor, which runs through Pakistan-administered land in the disputed border region of Kashmir. New Delhi claims the region as its own territory.

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A version of this article appeared in the print edition of The Straits Times on June 29, 2018, with the headline 'Trump's trade war speeds up thaw in China-India ties'. Print Edition | Subscribe