---
type: faq
question: >-
  Should India treat trade with China as a special case, given the trade deficit
  and strategic concerns?
topic: economic-growth
topic_title: Economic Growth
topic_url: 'https://liberty-lighthouse.vercel.app/topics/economic-growth/'
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---
# Should India treat trade with China as a special case, given the trade deficit and strategic concerns?

[India's trade deficit with China is over $100 billion a year.](https://www.statista.com/chart/35003/indias-annual-trade-deficit%252A-with-china/) It is a number that generates a great deal of political heat. But before answering what to do about it, let’s understand what it means.

A trade deficit simply means we buy more from a country than we sell to them. Every Indian household runs a deficit with its grocery store, its electricity provider, its children's school. None of us think that means the grocery store is exploiting us. The question is not whether the number is large — it is whether what we are buying is making us better off.

Most of what India imports from China are not finished goods replacing Indian ones. They are intermediate inputs — electronics components, machinery, organic chemicals, and active pharmaceutical ingredients, or APIs, the raw materials from which medicines are made. [India imports around 70% of its API requirements from China](https://www.orfonline.org/research/india-china-pharmaceutical-trade). When a pharmaceutical company in Hyderabad sources cheap APIs from China, it can produce medicines that are more affordable for Indian patients. Restricting those imports does not help India grow — it makes our supply chains more expensive and our medicines costlier.

So, the deficit, taken alone, is the wrong thing to worry about. But one might argue that China is not just another trading partner. Their manufacturing dominance is state funded with subsidies and preferential financing that private companies elsewhere do not receive. 

If the Chinese government wants to subsidize its manufacturing, let them. What that subsidy means in practice is that Indian manufacturers get cheaper electronics components, cheaper APIs, cheaper machinery all paid for, in part, by the Chinese taxpayer. Cheap imports make Indian producers more competitive, not less. The global market share that Chinese companies capture through subsidized pricing is not, by itself, a threat. The world is far more codependent than we realize. China needs global consumption as much as we need Chinese goods. If the world stopped buying tomorrow, China's vast installed manufacturing capacity would have nowhere to sell, and companies in China would start going bankrupt. Hence the dependence runs in both directions.

There are, of course, goods where a more careful approach is warranted — those that directly touch our sovereignty and our ability to defend ourselves. But even here, the answer is diversification and not self-reliance. For instance we import our Rafale fighter jets from France. But our defense procurement spans Russia, Israel, and the United States simultaneously. We have never believed that strategic importance means producing everything at home — we have always understood it to mean not depending on any single source. Applied to goods sourced from China, it means building alternative supply relationships where single-source dependence creates genuine risk – diversification and not restriction.