Foreign Affairs
India’s Geopolitical Triumph in De-Risking from China

Risks are crucial for nations to pursue their national interests, but they have become more diversified due to rising challenges such as environmental degradation, global warming, humanitarian disasters, and wars. Countries like China are increasingly using economic leverage to settle diplomatic scores, leading to a growing desire to “de-risk” their economic security from geopolitical, environmental, and other crises. Major advanced economies like the US, EU, and G7 nations are attempting to take control of global production and supply chains by looking inwards and outwards outside of China to reduce exposure to its unpredictable geopolitical practices.

Emerging economies in the Indo-Pacific, such as India, Vietnam, and Indonesia, may benefit from the West’s efforts to de-risk and align with major powers for a free, fair, and multipolar global order. However, it is crucial for benefiting nations to be mindful of their own economic entanglements with China, as their proximity to the country has exposed them to more direct and greater geopolitical challenges.

Diplomatic de-risking in the global economic context involves efforts to reduce risks to economic operations through concerted means, such as diversifying supply chains and production. The West’s de-risking of China involves multiple actions, practices, and policies, making it an ambiguous exercise. The agenda is to reduce exposure to China’s escalatory actions and use of trade as a tool for diplomatic coercion in critical areas like semiconductors and cleantech.

The pursuit of de-risking is driven by the acknowledged linkages between a safe economy and national security. Economic fallouts of global crises, such as the US-China trade war and recent attacks by Houthis in the Red Sea, have highlighted the impact of geopolitical entanglements on global trade and supply chains, affecting a country’s political resilience. This has led to countries looking for ways to continue dealing with China from a safe distance, which has proven futile.

Emerging economies like India may see this as an opportunity to bring investments home, similar to pharmaceuticals and global tech sectors. However, the West’s de-risking of China and China’s de-risking of the West should be dealt with caution, as perceptions of risks and responses to them can vary. The malleability of de-risking risks ambiguity makes potential investments uncertain and prone to vacillation.

India is aware of this catch, as it has its own de-risking priorities, such as those in the defense sector, and its economic entanglements with China, which remain robust and consequential to its growth, particularly via Global South groupings like BRICS. PRC remains one of India’s top trading partners, which is likely to have a bearing on India’s response to global de-risking efforts vis-á-vis its neighbor in the north.

India’s geographical proximity to China adds to the challenges of an isolated Chinese economy for India’s national security. Recent border skirmishes could complicate the implications of an isolated Chinese economy for India’s national security. However, de-risking strategies could be leveraged by like-minded countries to strengthen existing and forge newer partnerships, particularly for India, whose robust domestic demand, availability of critical skillsets, and shared vision for a liberal and democratic global order make it attractive to major economies to diversify their production bases and supply chains.

Growing global interest in a Free and Open Indo-Pacific, such as the Indo-Pacific Economic Framework (IPEF), and the promise of newer economic partnerships like the India-Middle East-Europe Economic Corridor (IMECC), are likely to find a germane space in global de-risking efforts. The common desire to safeguard economic supplies of critical products and raw materials from geopolitically-instigated risks, particularly a potential Chinese onslaught, can also push countries to iron out differences and disputes at multilateral organizations such as India and the US at the World Trade Organization (WTO).

Bilateral and multilateral free-trade agreements and strategic partnerships, like between India and Vietnam, could get a further fillip due to the requirement to protect economic and national security. The year ahead is likely to be competitive and fragmented, with prevailing geopolitical crises and rivalries further reducing avenues for global cooperation.

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