Xi-Modi-Putin Economic Axis Hardens As Trump Tariffs Backfire

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To be sure, India isn't exactly going all-in on Xi's China. Jeremy Chan, analyst at Eurasia Group, noted that Modi arrived in Tianjin from a bilateral summit in Tokyo and deliberately left before the Victory Day parade. That, Chan said, had the effect of“signaling that despite the improvement in relations with China, India still prioritizes its relations with Japan and the West.”

But as University at Albany's Christopher Clary tells The Guardian:“India likes other great powers to know that New Delhi has options. One advantage of being in lots of clubs is you can make high-profile entrances to those clubs if you're upset with how things are going in other relationships.”

As such, Clary added, the Xi-Modi-Putin confab“was a partial response to Trump's tariff tantrum. The core reality for India is that it doesn't have enough military capability to be confident of how an India-China fight would go. In this Trumpian world, India may not be able to find an outside ally that it can depend on, and so it needs to make sure the India-China relationship is calm.”

China, Chan explained, used the recent Shanghai Cooperation Organization summit to amplify its support for the Global South and its vision of a multipolar world. It was a chance for Beijing to contrast China's approach to global security - non-interference, multilateralism, and dialogue - with the US-led order.

In general, Chan noted, Beijing has been unwavering in its criticism of“unilateral bullying” and US“hegemonism.” That has Xi's Communist Party broadening its strategy of leveraging international resentment toward the US under Trump to“deepen ties with developing countries .”

Part of Modi's motivation is that“India, for its part, has received a raw deal that could significantly hit its exports to the US,” noted economist Priyanka Kishore at Asia Decoded. While further trade talks may bring down the 25% tariff rate and provide reprieve from a 'Russian penalty rate', Kishore said,“it appears unlikely that India will secure a significantly better outcome than its eastern neighbors, raising questions about its relative appeal as a China+1 destination.”

Shilan Shah, an economist at Capital Economics, warns that“India's attractiveness as an emerging manufacturing hub will be hugely undermined” by Trumponomics. US spending, Shah said, provides around 2% of India's GDP and Trump's extra 25% tariff is“large enough to have a material impact.”

Economist Ajay Srivastava at New Delhi think tank the Global Trade Research Initiative, noted that US actions could“push India to reconsider its strategic alignment, deepening ties with Russia, China, and many other countries.”

It's clear that India's“worst fears” have materialized as Trump 2.0 does its worst, said India's former central bank governor Urjit Patel.“One hopes that this is short-term, and that talks around a trade deal slated to make progress this month will go ahead,” Patel noted.“Otherwise, a needless trade war, whose contours are difficult to gauge at this early juncture, will likely ensue.”

As of now, India's GDP outperformed expectations in the second quarter. In fact, the economy gained steam in the April-June quarter. Asia's third-largest economy expanded 7.8%, the fastest pace in five quarters.

“Despite the reciprocal penal tariff, we are maintaining our growth range of 6.3%-6.8% for the full year,” India's Chief Economic Adviser Anantha Nageswaran said at a press conference after the data release.

India is being“driven by favorable cyclical factors such as low inflation and rate cuts by the Reserve Bank of India,” said economist Carlos Casanova at Union Bancaire Privée. Private final consumption expenditure remained steady at 7.0%, while government spending rebounded significantly to 7.4%, up from a contraction of 1.8% in the first quarter.

“Looking ahead, though, economic activity is expected to face headwinds due to heightened geopolitical tensions with the US,” Casanova noted.“While India's exports to the US account for less than 2% of its GDP, making the direct impact from tariffs manageable, the uncertainty is weighing on investor sentiment, dampening fixed capital formation and foreign direct investment .”

Casanova added that“as a consumption-driven economy, India is well-positioned to mitigate these challenges through recent policy measures.” For instance, he noted, the government plans to simplify the four-tier goods and services tax (GST) structure to two rates by early October, reducing most goods taxed at 12% to 5% and those at 28% to 18%.

“This move aims to boost domestic demand while offsetting the impact of US tariffs on exports,” Casanova said.“Additionally, the reform is expected to ease inflationary pressures, creating room for the RBI to consider further rate cuts during its October policy review.”

UBS Securities economist Tanvee Gupta Jain said that“the timing of GST reforms is apt,” given the need for counter-cyclical policy measures to offset tariffs. Tax cuts and reforms, she noted, will support household spending over the next few quarters .