India runs a surplus with the U.S. but a widening deficit with China. Should bilateral trade balances guide trade policy? Critically analyse.

A bilateral trade balance is a country's exports to one partner minus its imports from that partner. India has a substantial surplus with the U.S., while its imbalance with China has grown "exponentially" since 2014 [1]. These numbers are a useful warning sign, but they make a poor goal for trade policy.

Why bilateral balances deserve attention

• Strategic dependence: The deficit with China reached a record US$99.2 bn in 2024–25. China supplies about 70% of API inputs and more than 40% of electronics components [2]. That makes the deficit a supply-security risk, not just an accounting gap.
• Signal of unfair trade: A deficit that stays large and one-sided can point to dumping or overcapacity. India can respond with anti-dumping duties and quality-control orders, which WTO rules allow.
• Partners act on them: The U.S. reciprocal tariff order (April 2025) was explicitly framed around "persistent" goods trade deficits [3]. India cannot ignore the measure other countries are using.

Why they should not drive policy

• They are economically misleading: A bilateral balance mainly reflects comparative advantage and how much a country saves and invests. The overall current account matters, not each pair of countries.
• They miss value chains: Some of India's exports to the U.S. contain Chinese inputs. Cutting Chinese imports too bluntly could hurt those exports.
• They invite coercion: In August 2025 the U.S. added an extra 25% tariff on Indian goods, citing India's purchases of Russian oil [4]. Sitharaman calls this "weaponising" tariffs [1].
• They make India look inconsistent: India rejects the U.S. focus on balances while worrying about its own China deficit. That weakens India's credibility at the negotiating table [1].
• Market access depends on more than tariffs: The India–EU FTA leaves the EU's CBAM carbon border tax in place. CBAM could cost Indian exporters US$2–4 bn a year [5].

Way forward

• Use balances to diagnose dependence, not as targets. Pair them with sector-by-sector risk mapping.
• Cut input dependence through PLI schemes and diversified sourcing.
• Widen markets through FTAs, and push for CBAM recognition of India's carbon pricing [5].

Bilateral balances should therefore shape policy, not lead it. Trade policy should aim at competitiveness, resilient supply chains and rules-based engagement rooted in WTO's MFN principle. Doing so serves Atmanirbhar Bharat while preserving India's strategic autonomy.