Prime Minister Narendra Modi and Chinese President Xi Jinping’s meeting at the Shanghai Cooperation Organisation (SCO) summit in Tianjin could mark the beginning of a new chapter in India-China bilateral trade ties.
Two decades ago, India-China trade barely existed. In the early 2000s, the numbers were so small they hardly showed up on global trade charts. India exported raw materials like iron ore, while Chinese goods rarely made it into Indian markets.
Then came the boom. As China turned into the world’s factory and India’s economy opened up, trade between the two neighbours took off.
By 2010, Chinese smartphones, electronics, and solar panels were flooding Indian markets. India, in turn, kept selling iron ore and a few pharmaceuticals—but the balance of power had shifted.
Fast-forward to 2024–25, bilateral trade now stands at a staggering $127.7 billion, making China India’s second-largest trading partner after the United States. On paper, it looks like a success story. But behind the headline numbers lies a problem too big to ignore: a $99.2 billion trade deficit, the highest ever.
THE RARE EARTH FACTOR
Why does this matter now? Because India is facing a twin squeeze. On one side, Chinese imports—from electronics to solar modules—keep rising. On the other, the US has slapped steep tariffs on Indian exports, some as high as 50%, citing India’s Russian oil imports. Global trade winds have shifted, and India suddenly needs to protect its turf.
A critical component of this challenge is rare earth metals—essential for electric vehicles, smartphones, and defense technologies.
China controls over 90% of the global rare earth magnet market and has recently tightened export restrictions.
In April 2025, Beijing introduced stringent licensing requirements for key rare earth elements like neodymium and dysprosium, vital for EV motors and electronic devices. This move has disrupted global supply chains, including India’s manufacturing sector.
Indian automakers, such as Maruti Suzuki, Tata Motors, and Bajaj Auto, have raised alarms about potential production halts due to these shortages.
The Society of Indian Automobile Manufacturers (SIAM) warned that parts inventories could run out by the end of May, urging the Modi government to secure detained shipments at Chinese ports.
TIANJIN TALKS
Amid these challenges, PM Modi’s meeting with Xi Jinping at Tianjin was pivotal. Modi called for predictable trade rules and mutual respect, a diplomatic way of saying India wants fairer terms. Xi promised steps to improve connectivity, ease visas, and reduce bottlenecks. Both leaders framed the partnership as essential at a time when Western markets are turning inward.
However, talk is one thing; change is another. For India, the challenge is structural. It needs to boost exports in high-value sectors—IT services, pharmaceuticals, green tech—while reducing dependence on Chinese supply chains for electronics and pharmaceutical ingredients.
For China, holding on to India’s huge consumer market is crucial as Western economies tighten the screws.
What happens next will decide if this story moves beyond numbers. The last 20 years have seen India and China go from near strangers to major trading partners. The next few years will show whether they can turn an uneven relationship into a balanced one.
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