Navigating a Trump-China Rapprochement
how should India position itself if Trump pursues a closer relationship with China?
Economist Ruchir Sharma, in an exclusive interview with Business Today, warns of the potential risks associated with Trump's "transactional" approach to foreign relations. He highlights the possibility of Trump striking a deal with Beijing if it aligns with his personal or political interests, potentially leaving India in a vulnerable position.
Sharma emphasizes the precarious economic situation in China, marked by a property crisis, massive debt, and a rapidly shrinking workforce. This, he believes, will limit China's growth to a meager 2.5% annually over the next decade. However, he also acknowledges China's desire to stabilize its situation by seeking alliances with global powers, including the U.S.
Given Trump's unpredictable nature, Sharma advises India to remain neutral and keep its options open. He expresses skepticism about concerns regarding capital shifting away from India towards China, dismissing it as "short-term fluff." He believes that China's growth story is not sustainable enough to entice large-scale capital reallocation.
Instead, Sharma identifies the dollar's strength as the key factor influencing foreign investment in India. He predicts that as the dollar weakens, India, already a top-performing emerging market, will witness a surge in foreign inflows.
In conclusion, India's strategic approach in the face of a potential Trump-China rapprochement requires careful consideration. Sharma's insights highlight the importance of maintaining neutrality, managing expectations regarding capital flows, and capitalizing on India's inherent strengths as a robust emerging market.