It is now clear that the Modi-Trump bromance is over. In fact, Trump is now punishing Modi and India with unjust levels of tariffs. India’s diplomatic focus has now shifted to countries other than the US.Later this week, Prime Minister Narendra Modi will visit Tianjin, the city that will host the 2025 Shanghai Cooperation Organization (SCO) Summit, and meet the Chinese President Xi Jinping to build closer ties between the two countries.A TROUBLED PASTThis is a sharp turnaround in the bilateral relationship which had soured considerably following the border clashes in Galwan Valley in June 2020.Back then, many Indians were resolute that India should stop trading with China. In the immediate aftermath of Galwan, the Indian PM had addressed the nation and assured that the sacrifice of Indian jawans will not be in vain. The Indian government has since banned several Chinese apps and even restricted Foreign Direct Investments from China into India.However, since then, India has been positioning itself against China on key economic factors.India’s aversion towards trade with China was most on display when India decided to pull out of joining the Regional Comprehensive Economic Partnership (RCEP) at the last moment in late 2019.Story continues below this adThe RCEP is a free trade agreement between 15 countries of the Asia-Pacific, creating the world’s largest trading bloc. The only problem was that China was a key member and there was deep anxiety among Indian policymakers that joining the RCEP could give China an easy access to Indian markets, which will get swamped with cheap Chinese imports.Over these years, and especially in the aftermath of the Covid pandemic, India also presented itself the world over as a credible investment alternative to China — especially to western businesses who were adopting a “China +1” strategy. India competed with the likes of Vietnam, Mexico and even Poland to be that “+1” but with limited success.Indians saw China as the chief military adversary. So much so that even in military conflicts with Pakistan, like the one following the terror attack in Pahalgam in April this year, there was consensus that Indian forces were essentially fighting Chinese equipment in Pakistani hands.A CHANGE DRIVEN BY TRUMPIf one steps back for a moment, it becomes clear that both China and India have been forced to seek ways to collaborate with each other at present thanks to Trump’s tariff terror.Story continues below this adBarring Brazil, India, at 50%, is right now the most tariffed country by the US. China faced 145% tariffs not so long ago before talks resumed, and tariffs were rolled back to 30%. China started reaching out to several countries soon after it became clear to it that Trump is adopting a tariff-first-ask-questions-later approach.India received that very same treatment a few months later.At one level, this was an expected outcome given the way US said it would calculate its “reciprocal” tariffs. Read this explainer in The Express where it was clearly stated — on the day US announced 26% reciprocal tariffs on India — that “if wiping out the trade deficit is the central goal, then the US will further raise tariffs on India because by definition, reciprocal tariffs are the tariffs that balance trade.”On August 28, Bloomberg reported that China had reached out to India as early as March but India only responded in June.Story continues below this adA week ago Chinese ambassador to India Xu Feihong reportedly said: “US has imposed tariffs of up to 50% on India and even threatened for more. China firmly opposes it. Silence only emboldens the bully.”Xu seems to have taken words out of Modi’s past speeches when he called the two countries “double engines” of economic growth in Asia.BUT CHOOSING CHINA OVER THE US MAY COME AT A COSTThese overtures from China must appear like a godsend for Indian policymakers at a time when the US is doubling down trying to force the world’s largest democracy and the world most populous country into opening its markets to American goods.Story continues below this adBut there are many reasons why a closer trade partnership with China can be more challenging for India than a closer trade partnership with the US.In other words, if protecting its domestic producers (be it in manufacturing or in other sectors) is the central goal of Indian policymakers then choosing China over the US may be akin to jumping out of the frying pan into the fire.Here are six reasons:#1: India’s deepening trade weakness with ChinaIndia’s trade relations with China are completely in contrast to its trade strength with the US.Against the US, India has enjoyed a trade surplus of over $40 billion — that is, India’s exports to the US are $ 40 billion more than its imports from the US. In fact, it is this deficit (from the US’ perspective) that Trump is trying to address.Story continues below this adBy contrast, India suffers a trade deficit of nearly $100 billion against China.#2: China’s tremendous strength in manufacturingTo be sure, India is not the only one that suffers a trade deficit with China. The fact is over the past quarter of a century, China has come to dominate exports globally. Just look at the spike in China’s share of global exports inBaldwin says that just like the US is the world’s sole military superpower, China is now the world’s sole manufacturing superpower.#3: India’s growing weakness in manufacturingTake a look at TABLE 1, which sources official data on economic growth. The gross value added (measure of a sector’s economic growth ) in manufacturing since 2019-20 has grown at a CAGR (annual average rate) of 4%, while that of agriculture has grown by 4.7%.Story continues below this adSince trade is a relative game, it is of utter consequence that at a time when China is overflowing with manufacturing prowess and capacity, India’s manufacturing is struggling to even outpace farm output.#4: What happens to India’s claim of being the “+1” alternative to ChinaOn August 28, Bloomberg also reported that Mexico is set to raise tariffs on imports from China. In particular Mexico is set to target imports of textiles and automobiles from China. While it is not stated openly, anecdotal evidence points to Trump as the trigger for this decision. What if more US allies decide to tariff those countries that US tariffs?This has two implications.One, if India openly sides or even aligns with China, it may severely compromise its claim to be an investment destination for those western businesses that want to de-risk from China. Worse still, just as the US is likely pressurising its trading allies to raise trade barriers against China, it may pursue a similar line of attack with India if it is seen to be closer to China than to the US.#5: How will India deal with China’s rising overcapacityStory continues below this adThe second implication of the Mexico story is that such trade restrictions will further worsen China’s overcapacity problem.China is already battling deflation — that is, the opposite of inflation and refers to a period when prices fall in absolute terms. Deflation is often more dangerous than inflation because it robs the consumers of the incentive to buy — why buy when the same thing could be cheaper tomorrow?— while taking away the incentive for businesses to keep producing — why produce when consumers keep delaying purchases?A deflation can bring an economy to its knees.The way out for China is to flood markets other than the US — and now perhaps its allies — with its excess capacity.If India stands too close to China, pressures to absorb cheaper Chinese goods may increase.#6: China is not a natural partnerWithout doubt, China and India have been the two standout stories of economic resurgence of the past three-four decades.Still, they are in many ways very different countries with very different societies and completely different ways in which they govern themselves.India has been trying to mould itself into a private sector led market economy where media is free, rules are transparent, and democracy is uncompromised while in China it is still unclear when the private sector ends and the state begins.Moreover, it is no secret that China (on the east) has been a long-time supporter of Pakistan, India’s western neighbour and constant military adversary.Given these geopolitical and domestic realities, building a stable and credible relationship might be easier said than done.Upshot: India continuing to be shy about opening itself up for free global trade is essentially a result of the deep structural weaknesses that continue to plague the domestic economy.For a while, lack of reforms were blamed on the existence of weak coalition governments that were more bothered about surviving a full term than actually undertaking structural reforms.But even a decade of a single-party majority failed to do enough, and in fact, all the evidence points to India becoming more protectionist since 2014 even as its growth momentum lost a step.China, in the meantime, has become so big that it has become a threat to the US. But at the same time, it is bursting with overcapacity and looking for countries where it can sell its goods cheap.The US, on the other hand, increasingly looks like a superpower desperate to remedy its weakening grip on a world it once ruled without question. It is being helped along with poor and arbitrary policy choices under President Trump that are likely to be counterproductive apart from alienating its long-standing allies.Under the circumstances, closer trade ties with China, a country with which India has several strategic conflicts, apart from China being capable of overwhelming the Indian economy (definitely far more than the US) with its export prowess is fraught with challenges.What should PM Modi do now? Should he trade more freely with China or try to mend bridges with the US?