As Donald Trump prepares for a second term, India faces a strategic dilemma: how to position itself if Trump warms up to China. Economist Ruchir Sharma warns that Trump’s approach to foreign relations has always been “very transactional,” which means he could easily strike a deal with Beijing if he sees personal or political gain.
“There’s nothing strategic,” Sharma said in an exclusive chat with Business Today’s Editorial Director Rahul Kanwal.
“Tomorrow, if America strikes a deal with China…America can easily leave India out in the cold.”
Sharma explains that, despite China’s economic struggles, Trump might find an alignment with Beijing beneficial.
“The situation in China…is very bad. They have a full-fledged property crisis which is going on…China has run up massive debt in deficits…it’s about 300% of GDP. The other big problem China faces is demographics…over the next 10 years China is going to lose 6 to 7 million people every year in the workforce,” Sharma states.
This demographic and economic decline, he believes, will limit China’s growth to “maybe 2 and a half percent a year for the next decade.” Yet, he emphasizes, China will still want to “stabilize the situation” by reaching out to global powers, including the U.S.
For India, aligning too closely with America poses risks, particularly with Trump’s unpredictable approach. Sharma advises that “India has got to remain neutral in this…therefore I think that we have to keep our options open.”
Sharma also addresses investor concerns regarding a potential reallocation to China. While some fear capital shifting away from India, Sharma is skeptical. “All this other talk that China’s done a big stimulus, some money will go there…I think this is all short-term fluff,” he asserts.
“I don’t think China’s growth story is so sustainable that people are going to reallocate capital to China [and] move away from India.”
Instead, Sharma believes the key variable for foreign investors in India is the dollar. “When the dollar does start to weaken, that’s when you’ll see foreign inflows come in here…India is one of the best-performing emerging markets in the world.”
