Opinion Trump has announced G2 – with China. What should India do

It was the Trans-Atlantic Financial Crisis (TAFC) of 2008-09, popularly referred to as the Global Financial Crisis (GFC), that gave further currency to the idea. American politicians and strategists like Henry Kissinger and Zbigniew Brzezinski pushed the idea forward. The reason for this was simple.

Two consequences of TAFC were that it contributed to a shrinking of the trans-Atlantic economies, especially the US, Britain, Germany, Italy and France, and to an increase in China’s share of world income and trade. More importantly, China came to the rescue of the world economy, helping both the US and EU bounce back from the 2009 crisis. It had initially done so in its neighbourhood, rescuing Thailand and Indonesia after the 1998 Asian financial crisis. In 2009 it was, in fact, bailing out the world’s biggest economy.

The US treasury secretary at that time, Hank Paulson, has recorded in detail in his many books China’s role in helping both global and American economic recovery. This China did by unleashing a massive fiscal stimulus, protecting the US dollar (in which it had invested massively) and sustaining world trade in the post-crisis years. TAFC was the turning point and the trigger that not only enabled China’s accelerated rise, but also underscored the complex links between the US and Chinese economies.

It was against this background that US strategists like Edward Luttwak and Robert Blackwill advocated the “geo-economic containment” of China. Trump adopted the Luttwak line during his first term in office with the enthusiastic support of his trade policy strategist Robert Lighthizer. President Joe Biden initially went a step further and advocated “delinking” the US and Chinese economies. This view was soon changed to suggest that the two economies cannot delink but that the US economy should “derisk” and reduce dependence on China.

Returning to office, Trump went back to his initial strategy of pursuing a “trade war”, not just against China but against the rest of the world. That strategy seems to have run its course. While allies like the European Union and Japan fell in line, Brazil, China and India have stood their ground. It is China’s ability to not only stand firm but to in fact retaliate that seems to have finally put paid to Trump’s trade war.

While many have termed the US-China understanding reached last week in South Korea a “ceasefire”, some US strategists like Rush Doshi have in fact suggested that China has “won” the trade war. Whatever the final tally of gains and losses, the fact remains that within two decades of the publication of Bergsten’s book, a US president has come around to conceding that the world’s two biggest economies must indeed work together. The revival of the G2 idea also stands in contrast to Trump’s disinterest in the G20.

What does this mean for India? In his outlining of the foreign policy agenda of the Narendra Modi government, in the book The India Way: Strategies for an Uncertain World (2020), External Affairs Minister S Jaishankar said that India’s policy of multi-alignment would require it to “engage America, manage China, cultivate Europe, reassure Russia, bring Japan into play, draw neighbours in, extend the neighbourhood and expand traditional constituencies of support”. It would be fair to say today that thanks to Trump, India is now required to in fact “manage” America and “engage” China, while continuing to “reassure” Russia.

A quarter century ago, “engaging” America was viewed as also a means to “manage” China. Today, engaging China seems to have become a means to manage America. This situation requires new thinking in New Delhi for it places a few new cards in Beijing’s hands. The Modi government has so far adapted well to the new global strategic environment, refusing to kowtow to Trump, but demonstrating enormous patience in “managing” him. Any return to “engagement” will depend on the success of the efforts to “manage”. Equally, it would depend on how well India engages and manages other interlocutors, especially its Asian neighbours, near and afar.

It should be clear to any Indian strategist and security analyst that in the near term, India’s standing in the world will depend vitally on its standing within Asia. There was a time when it was believed in New Delhi that a good equation with Washington, DC would in turn facilitate improved equations around the world — in Europe, Eurasia and Asia. It was this perspective that informed Prime Minister Manmohan Singh’s outreach to President George Bush.

That world has changed and those calculations no longer hold. We are in fact in a situation wherein better relationships across Asia will stand India in good stead in dealing with the West — both the US and Europe. At Kuala Lumpur, Jaishankar reflected on the way forward with a hopeful and reassuring observation: “Change has a life of its own. And the world will inevitably respond to new circumstances. Adjustments will be made. Calculations will come into play, fresh understandings will be forged, new opportunities will emerge and resilient solutions will be devised.” Clearly, a new “India Way” forward is needed.

Baru was editor, The Financial Express. His most recent book is Secession of the Successful: The Flight Out of New India