Caught In Crossfire? A Warning For India As US-China Rivalry Escalates

India must urgently recalibrate its global strategy amid a deepening U.S.-China tech and trade confrontation, the Economic Survey 2025–26 warns, calling on the country to pursue "strategic indispensability" or risk being sidelined in a world rapidly reorganizing around AI, semiconductors, and critical minerals.

At the center of this global realignment is what the Survey calls "Pax Silica," a sweeping U.S.-led initiative that seeks to dominate the AI value chain by securing energy sources, rare earth elements, chip manufacturing, and control over software models. This new order, the Survey argues, marks the end of the oil-and-steel age and the beginning of an era where "compute" is the ultimate lever of power.

The United States is actively redrawing the global tech map. It has imposed extensive export controls to block China's access to advanced semiconductors and the tools needed to manufacture them. In retaliation, China has moved to restrict exports of rare earths and permanent magnets, key inputs for high-tech industries, and placed several foreign companies on its "Unreliable Entities List." 

These moves are not symbolic. The Survey describes them as evidence of a full-fledged "strategic rivalry," where both countries are abandoning efficiency, driven trade in favor of politically driven economic decisions.

China, meanwhile, is also fighting its own internal battles. The Survey paints a picture of economic stagnation marked by deflation, tepid domestic demand, and a property sector in crisis. As its internal engines slow, China has leaned harder on manufacturing and exports to keep growth alive. In a notable shift, Beijing launched a Free Trade Port experiment in Hainan in December 2025, designed to bypass external frictions by relaxing customs and investment rules.

In contrast, the U.S. is moving swiftly to build an exclusive technology alliance. Through Pax Silica, it is partnering with "like-minded" nations to create a secure AI ecosystem, built on resilient supply chains and geopolitical alignment. The Survey warns that in this emerging order, power will flow to countries that control advanced materials, critical APIs, and semiconductor production, those that become strategically indispensable.

India, the Survey argues, cannot afford to play catch-up. It must abandon the comfort of being a back-office economy and instead anchor itself in global value chains with products and services that no country can easily substitute. This includes building core domestic innovation capacity and reducing dependence on foreign digital systems. If India fails to do so, it risks remaining a client state in a world increasingly defined by technology denial and strategic leverage.