India–US trade talks, Trump and the China factor: Why New Delhi’s foreign policy faces its toughest test in 2026

As India steps into 2026, its long-standing foreign policy doctrine of diversification—variously described as non-alignment, multi-alignment or omni-directional engagement—is facing its most exacting stress test. At the heart of this challenge lies an increasingly fraught relationship with the United States, where stalled trade talks, shifting strategic priorities and President Donald Trump’s unpredictability have combined to inject fresh uncertainty for policymakers and businesses alike.

Speaking on CNBC-TV18’s Global Lens, former Indian ambassadors Rajiv Bhatia, Ashok Sajjanhar and Ashok Kantha offered a sobering assessment: the India–US relationship is no longer being shaped primarily by trade negotiations, but by deeper political and security calculations linked to China, the Indo-Pacific and Washington’s evolving global strategy.

Trade talks stuck, but the problem runs deeper

India and the United States have spent over a year negotiating a trade agreement, with little to show on the ground. According to Rajiv Bhatia, former Indian ambassador, this impasse reflects a fundamental shift in the nature of the relationship.

“The trade deal is no longer about trade,” Bhatia said. “It is about basic political questions that characterise the changing equation between Delhi and Washington.”

Bhatia argued that India’s role in the Indo-Pacific, its position in Asia, and even its relationship with Pakistan now form part of Washington’s broader strategic calculus. The United States, he noted, has “discovered some new uses of Pakistan” in the context of West Asia, complicating India’s regional environment.

At the centre of these cross-currents is what Bhatia described as the most consequential geopolitical equation for 2026: the triangular relationship between the US, China and India. “If we can decipher that,” he said, “Delhi and Washington would be able to handle the relationship with greater maturity and sensitivity.”

Managing Trump amid uncertainty and eroding trust

For India, the challenge is magnified by President Trump’s transactional and often volatile approach to diplomacy. With US domestic politics—including midterm elections—shaping economic and foreign policy decisions, New Delhi has limited visibility on whether a trade deal will be concluded, or whether fresh demands will emerge even if one is signed.

Ashok Sajjanhar, former Indian ambassador, said India’s response so far has been measured and deliberate. “India has handled Mr. Trump very well,” he said, pointing to New Delhi’s restraint in the face of sharp rhetoric from Washington. “We maintained our calm and focused on substantive negotiations.”

India, Sajjanhar said, has clearly articulated its red lines and offered what it reasonably can. The onus, he argued, is now on the United States to recognise those limits. However, he acknowledged that trust between the two countries has weakened significantly.

“By Mr. Trump’s actions, the trust between the two countries has been severely eroded,” Sajjanhar said. “We have to see how we continue with this interdependence with much lesser trust, so that we don’t put all our eggs in one basket.”

Diversification as insurance, not substitution

That thinking explains India’s renewed push to diversify its economic partnerships. Over the past year, New Delhi has signed free trade agreements with the UK, New Zealand and Oman, and concluded a pact with the four-nation European Free Trade Association (EFTA). Talks are also underway with the European Union and Chile.

Sajjanhar cautioned that diversification cannot replace the United States in the short term, but stressed that it provides critical insurance against policy shocks. “This diversification is important. It will definitely help,” he said, adding that India must simultaneously identify areas—such as defence cooperation and the Indo-Pacific—where engagement with Washington can continue despite trade frictions.

Indeed, defence remains one of the few bright spots, with the extension of key defence agreements and joint military exercises continuing even as trade talks stall.

Why a new US ambassador won’t be a silver bullet

Hopes that the arrival of a new US ambassador in New Delhi could reset ties may be misplaced, warned Ashok Kantha, former Indian ambassador to China. While welcoming the appointment, Kantha was clear that personalities alone cannot resolve what he described as structural shifts in US policy.

“There has been a fundamental shift in US foreign policy—towards the Indo-Pacific, towards India, and towards China,” Kantha said. “All this together has created a very ticklish, difficult situation for us.”

Kantha pointed to the latest US National Security Strategy, which appears to recast China less as a strategic adversary and more as an economic challenge. This, combined with what he sees as the reduced salience of India in US strategic thinking, complicates New Delhi’s choices in 2026.

“There is a need to revisit how we engage with the US in strategic terms,” he said, stressing the importance of sustained dialogue amid mixed and often negative signals from Washington.

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A defining year for India’s strategic autonomy

Taken together, the assessments from the three former diplomats underline a central dilemma for India in 2026: can it continue to balance relationships across competing power blocs without being forced to choose sides?

With neighbourhood challenges intensifying, China’s posture evolving, and the US recalibrating its global priorities, India’s strategy of diversification is becoming increasingly high-maintenance. For Indian businesses and investors, the stakes are equally high, as trade policy, supply chains and market access become more tightly entwined with geopolitics.

As Bhatia, Sajjanhar and Kantha made clear, 2026 is unlikely to offer easy answers. What it will demand, instead, is sharper strategic clarity—and tougher decisions—from New Delhi as it navigates one of the most complex global environments it has faced in years.

Watch accompanying video for entire discussion.