Why India needs a strategy of derisking from US & China

THE notion that economic interdependence would bind nations into a web of mutual benefit too costly to undo has been negated by the emergence of "weaponised interdependence", where global economic networks are exploited by powerful states for coercive ends.For India, both a significant participant in these networks and a frequent target, this reality demands a clear-eyed recalibration of its policies. The response must be a strategy of derisking to reduce exposure to external coercion.While we have been speaking mainly of economic derisking vis-à-vis China, risk management in respect of the US is also warranted in view of its recent behaviour and the track record of imposing far-reaching sanctions on India. India needs a strategy of dual and differentiated derisking. Dual because vulnerabilities arise from both China and the US. Differentiated because the scale, intent and instruments of derisking must vary across the two fundamentally different relationships.Derisking vs decouplingThe conflation of derisking with decoupling has created confusion. Decoupling implies the aspiration to exit economic relationships. Derisking is a more nuanced concept: it means remaining economically engaged while reducing vulnerabilities which can be exploited by external actors.India cannot afford to disengage economically from either China or the US. Derisking is essentially the construction of safeguards while preserving and even deepening economic engagement where it helps build the country's economic and technological sinews.Why 'dual'The case for directing derisking at both China and the US rests on an uncomfortable truth: both have demonstrated sustained willingness to weaponise economic relationships when their political interests demand it.The US operates primarily by privileging access to its huge market and through its dominance of dollar-denominated financial systems, tech supply chains and the global semiconductor architecture. Its reach is vast and often extraterritorial.It has a long history of deploying sanctions and technology denial regimes against India. This pattern began in earnest after India's 1974 nuclear test with a sweeping technology denial regime and reached a peak following the 1998 nuclear tests when comprehensive economic sanctions sought to cripple India's economy.Even in the current era of closer partnership, Washington has continued to leverage its strengths and India's vulnerabilities. The first Trump administration imposed Section 232 tariffs on Indian steel and aluminium, withdrew India's preferential access under the Generalized System of Preferences and used the threat of secondary sanctions to compel New Delhi to halt oil imports from Iran.Trump's return to the White House has intensified these dynamics. The most consequential measures at one point were 50% tariffs on Indian exports, including a 25% penalty linked to India's purchases of Russian oil.The tariff episode revealed several hard realities for India: market access can be weaponised, supply chain participation is conditional and technology cooperation cannot be insulated from trade volatility. These developments are not a transient aberration; they are arguably a structural feature of an increasingly transactional US approach.China has also developed an elaborate regime of sanctions and counter-sanctions, leveraging its position as a central node in global supply chains to exert the "chokepoint effect" - limiting or denying other actors' access to critical inputs or its markets. Instances of punitive measures abound: Australia after calling for a Covid-19 inquiry; South Korea, for deploying the THAAD system; Lithuania, after opening a Taiwan representative office.India has not been spared. In 2024-25, China withheld or delayed export clearances for rare earth magnets, denied tunnel-boring machines, restricted specialty fertilisers and withdrew Chinese personnel from manufacturing facilities — each measure calibrated to send a political signal while inflicting economic pain.India's vulnerability is compounded by the scale of its dependence. China accounts for nearly 17% of India's imports, with huge dependencies on imports in critical sectors like active pharmaceutical ingredients, electronics, chemicals, solar components, industrial machinery, rare earth magnets and critical minerals. These dependencies have deepened even as bilateral political relations have remained fraught — a combination that creates conditions for sustained strategic risk.Why 'differentiated'While both China and the US weaponise interdependence, they do so from fundamentally different positions in India's strategic calculus of risks and utility. This demands a differentiated approach.Derisking vis-à-vis the US must be targeted, precautionary and carefully bounded. America remains India's most consequential strategic partner — in critical technologies, defence, maritime security, intelligence sharing and the broader management of the Indo-Pacific. It is the largest market for India's exports, accounting for over 21% of global exports in first three quarters of FY 2025 despite Trump tariffs (compared to mere 3.5% as China's share).The objective of derisking here is not to dilute the partnership but to enhance resilience, ensuring that access to critical technologies, financial systems and markets cannot be unilaterally conditioned on India's compliance with American geopolitical preferences.Developing alternative markets for exports, greater self-reliance in frontier technologies, alternative payment infrastructure, diversified defence procurement, domestic semiconductor capacity and sovereign artificial intelligence (AI) capability are the foundations of this approach.In the AI domain, while India has valid reasons to avoid the "China stack", exclusive reliance on American foundational models carries the risk of "algorithmic subordination" and digital colonialism. Derisking here does not mean rejecting American technology or equipment but ensuring that India builds its own "sovereign stack".Derisking vis-à-vis China must be deeper, more structural, and more urgently pursued. China is a strategic competitor with a proven and systematic doctrine of coercive economic statecraft, an unresolved boundary dispute, demonstrated military assertiveness along the Line of Actual Control, and strategic nexus with Pakistan that directly imperils Indian security.Derisking from China will be difficult and costly, requiring a sustained, government-wide effort. The starting point must be a rigorous identification of sectors where dependence creates genuine national security vulnerabilities and an objective assessment of where alternatives exist and where domestic capacity must be built.The roadmap for derisking from China must encompass diversification of supply chains through partnerships with the US, Japan, South Korea, Taiwan, Southeast Asia, and Europe; accelerated trade diversification, including to Africa and Latin America; much greater focus on creating indigenous technological capabilities; domestic capacity building in critical sectors; strengthened investment screening to prevent strategic vulnerabilities from deepening; and commercial relations where risks are low.Where economic engagement with China continues —and it will and should in many areas — it must be structured through clear safeguards, transparency requirements, and diversification benchmarks that prevent any single dependency from becoming a chokepoint.This process requires more caution than some analysts propose. Arguments that India should broadly welcome Chinese capital, talent, and technology to convert dependencies into strategic assets underestimate the risks of creating new vulnerabilities. Besides, there is little evidence suggesting that China is inclined to build India's capabilities or transfer technology in key sectors.Strategic autonomyIndia's objective must be to enlarge its space for independent action in a world where great powers deploy economic tools as instruments of dominance. It needs a dual but differentiated derisking policy — targeted and precautionary vis-à-vis the US, structural and security-driven vis-à-vis China. It is India's bid to engage the world on terms that preserve its autonomy, protect its critical capabilities, and ensure that economic interdependence remains an asset rather than a vulnerability.The goal, ultimately, is strategic autonomy buttressed by greater resilience — built through domestic technological and manufacturing capabilities, development of AI in applications and engines powering them, diversified partnerships, forging its leverage and counter-measures, and reducing chokepoints before they are used against it.(Mr Kantha is Subhas Chandra Bose Chair of International Relations at Chanakya University and Distinguished Fellow at Vivekananda International Foundation)

Why India needs a strategy of derisking from US & China

Why India needs a strategy of derisking from US & China Both countries have demonstrated sustained willingness to weaponise economic relationships when their political interests demand it

Ashok K Kantha

Why India needs a strategy of derisking from US & China

Why India needs a strategy of derisking from US & China Both countries have demonstrated sustained willingness to weaponise economic relationships when their political interests demand it

Ashok K Kantha

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