What We’re Watching: US and China's rocky marriage and India’s unlikely success

China-US: Bad politics, good economics

President Joe Biden is a very different president than his predecessor, Donald Trump. But on some foreign policy issues – notably managing relations with China – the two are kindred spirits. US-China relations crashed under Trump, and Biden has kept the relationship on a mostly combative footing, leaving Trump-era tariffs on some Chinese goods in place. Still, while the White House talks tough about isolating China geopolitically, speculation of a US-China “decoupling” is misplaced. Beijing and Washington need each other because their economies are closely intertwined. The US is China’s biggest trading partner, with Americans importing a whopping $541.5 billion worth of Chinese imports in 2021. Even in 2020 – a slower trading year amid the pandemic – China and the US traded $559.2 billion worth of goods. What’s more, two-way foreign direct investment, which is more resistant to economic shocks, has ballooned in recent years (Chinese FDI in the US increased 61% between 2015 and 2020). The resilience of the bilateral economic relationship is also reflected in the fact that China is the third-largest export market for American goods (behind Mexico and Canada). Support for a tough-on-China stance gets rare bipartisan support in Washington these days, so political ties between Beijing and Washington will likely remain rocky. Still, with their economic fortunes so closely linked, China and the US are in this marriage for the long haul.

How is India doing so well?

On the surface, India seems to be having a moment. With record-breaking monthly exports and a post-pandemic bounce-back of 8.7% GDP growth pushing the size of its economy to $3.3 trillion, Prime Minister Narendra Modi seems well on his way to meeting his goal of making the country a $5 trillion economy before long. Meanwhile, both Russia and the West are courting Delhi as a key ally these days. But beneath the surface, not all is well. Despite Modi’s ambitious economic reforms, inequality remains stubbornly high, and the war in Ukraine has worsened inflation. Unemployment, meanwhile, is at 7.8%. In a country with 360 million people under age 15, that’s a big long-term problem. Meanwhile, Modi’s move to ban wheat exports has angered its Western partners, while the anti-Muslim bent of Modi’s ruling BJP party has antagonized Delhi’s Gulf partners. And of course relations with China, the other billion-strong Asian heavyweight, are strained. Modi looks secure at home, with no real opposition and a compliant media, but things aren’t getting easier for the world’s most populous democracy.