The intensifying rivalry between the United States and China — fueled by trade disputes, technological competition, and shifting alliances — is reshaping the world order. The Cold War’s focus on geography has given way to a new era defined by economic innovation and adaptability. In this evolving landscape, India is capitalizing on its vast market and economic reforms to strengthen its global influence. In contrast, Pakistan is grappling with economic headwinds, trying to find relevance in a world driven by trade, tech, and resilience.
Globalisation, which underpinned three decades of low inflation, is now unraveling. Former U.S. President Donald Trump’s populist, neo-isolationist policies disrupted the status quo, dismantling the foundations of global supply chains and cost-efficient outsourcing.
Nobel laureate Paul Krugman argues that U.S. tariff policies may have inflicted lasting damage on globalisation. Even a rollback wouldn’t fully restore confidence in the U.S. as a global economic leader.
Deglobalisation is inflationary by nature. It replaces efficient global supply networks with costlier domestic alternatives. Rising input costs, disrupted logistics, and persistent price volatility now appear structural. Tariffs arising from U.S.-China friction, EU-U.S. tensions, and retaliatory moves in rare earths markets indicate a deeper economic shift requiring fresh strategies.
Pakistan, for instance, could rejuvenate its struggling textile, cement, and agriculture sectors by opening trade with India — a billion-strong market next door.
The U.S.-China trade war has intensified, with China restricting exports of key rare earth elements like dysprosium and terbium — vital for tech and aerospace — in response to U.S. tariff hikes. Given that China supplies 90% of these minerals, this move has rattled global supply chains.
Economist Lawrence Summers warns that this tit-for-tat approach risks widespread economic instability. He criticizes Trump’s strategy as escalating the problem without addressing its root causes — likening it to “digging deeper into a hole.” The latest move: China suspending future Boeing aircraft deliveries.
Amidst this turmoil, India remains the world’s fastest-growing major economy. The U.S.-China divide has prompted multinationals to diversify their supply chains, and India has emerged as a prime alternative. In 2023–24, Apple’s partners Foxconn and Wistron produced $14 billion worth of iPhones in India. Apple now aims to shift 25% of its production to India by 2027, up from just 5% in 2020. Foreign direct investment (FDI) in India hit $44.4 billion in FY24 — a robust figure as global FDI slumps.
Strategically, the U.S. is deepening ties with India as a counterweight to China. Bilateral trade reached $129.2 billion in 2024, with Indian exports at $87.4 billion. Through the Quad (India, U.S., Japan, Australia) and military agreements like LEMOA, India is strengthening its strategic presence in the Indo-Pacific.
U.S. investment in India’s tech and defense sectors further reinforces the relationship. At the same time, India’s trade with China — $118.4 billion in FY24 — highlights ongoing economic interdependence, despite geopolitical tensions.
India’s “Make in India” and “Digital India” initiatives have pushed IT exports past $200 billion in 2024. Mobile phone exports hit $15 billion, helped in part by U.S. tariffs on Chinese electronics. With 570 million internet users, India’s digital economy now ranks third globally by purchasing power parity.
According to the IMF, India is on track for 7% annual GDP growth through 2030, putting it on course to become the world’s third-largest economy. However, challenges like port congestion, ageing infrastructure, and a skills gap could limit long-term progress, warns IMF’s Gita Gopinath.
India’s manufacturing share, at just 3% of global output in 2023, lags far behind China’s 32%. But the “China+1” strategy is driving more business India’s way — Walmart, for instance, has increased imports from India by 30% since 2020. India’s tariffs to protect domestic industries align with the deglobalisation trend, but India still complements, rather than rivals, China’s industrial dominance.
India is also expanding its strategic footprint — negotiating missile deals in Southeast Asia, spearheading the Middle East-Europe Economic Corridor, and maintaining a delicate balance between U.S. and Chinese ties. Beijing has signaled openness to more Indian goods, even as India champions the Global South’s interests.
Pakistan’s situation is markedly different. Once a key player during the Cold War due to its proximity to Afghanistan, its strategic significance has faded as economics overtakes geography. While the China-Pakistan Economic Corridor (CPEC) has brought infrastructure, it’s also saddled Pakistan with heavy debt — over 80% of project costs came from costly financing. Trade with China reached $20 billion in 2024, far exceeding its $7.7 billion trade with the U.S., deepening its dependency on Beijing and deterring Western investment.
Pakistan’s economy faces stiff challenges. Its textile sector, which makes up 60% of exports, is burdened by high energy costs and outdated technology. FDI has dropped to $1.8 billion in FY24 — a stark contrast to India’s $44.4 billion.
The World Economic Forum ranks Pakistan 107th in competitiveness. The World Bank’s Martin Raiser notes the country is “stuck in a low-growth trap,” with poor human development and rising poverty.
Still, Pakistan is trying to pivot. In April 2025, Army Chief Gen. Asim Munir met with a U.S. congressional delegation, signaling interest in broader regional security and cooperation. While outcomes remain uncertain, the effort reflects a willingness to diversify beyond China.
Opening trade with India could spark economic revival. Historical tensions have long blocked such efforts, but collaboration could rejuvenate Pakistan’s textiles, agriculture, and cement sectors — and ease reliance on China. Talks like expanding Wagah-Attari trade have faltered in the past, but future cooperation may yet bring economic dividends.
For India to sustain its rise, it must double down on reforms: modernize infrastructure, skill its workforce, and adopt sustainable practices to meet climate goals, as Brookings’ Eswar Prasad advises.
Diversifying trade partnerships — with the EU, ASEAN, and beyond — can reduce India’s reliance on the U.S.-China equation. Initiatives like the Indo-Pacific Economic Framework help solidify its role in a multipolar world. As CFR’s Manjari Chatterjee Miller notes, India’s diplomatic balance between Washington and Beijing reinforces its global stature.
Pakistan has a tougher path. It must reform governance, resolve provincial tensions, fix energy inefficiencies, and diversify exports. Its overtures to the U.S., while early, reflect a desire to recalibrate. Reinvigorating SAARC or exploring trade ties with India could anchor its regional future — if political will allows.
The pressures of deglobalisation — higher costs, fragile supply chains — make reform urgent across South Asia. The U.S.-China contest is shaping the region’s trajectory.
India, with momentum and strategic agility, is poised to rise. Pakistan, unless it adapts boldly, risks falling behind. In this new world disorder, economic resilience matters more than geography.
