Just as India showed flickers of progress toward its long-held dream of becoming the world's factory, Washington and Beijing announced a trade "reset" that could derail Delhi's ambitions to replace China as the global manufacturing hub. Last week, Trump's tariffs on China dropped overnight - from 145% to 30%, vs 27% for India - as the two sides thrashed out an agreement in Switzerland. As a result, there's a chance manufacturing investment that was moving from China to India could either "stall" or "head back", feels Ajay Srivastava of the Delhi-based think tank, Global Trade Research Institute (GTRI). "India's low-cost assembly lines may survive, but value-added growth is in danger." The change in sentiment stands in sharp relief to the exuberance in Delhi last month when Apple indicated that it was shifting most of its production of iPhones headed to the US from China to India. That may well still happen, even though US President Donald Trump revealed that he had told Apple CEO Tim Cook not to build in India because it was "one of the highest tariff nations in the world". "India is well positioned to be an alternative to China as a supplier of goods to the US in the immediate term," Shilan Shah, an economist with Capital Economics, wrote in an investor note before the deal was announced. He pointed out that 40% of India's exports to the US were "similar to those exported by China". There were early signs that Indian exporters were already stepping in to fill the gap left by Chinese producers. New export orders surged to a 14-year high, according to a recent survey of Indian manufacturers. Nomura, a Japanese broking house, also pointed to growing "anecdotal evidence" of India emerging as a winner from "trade diversion and supply-chain shift in low and mid-tech manufacturing" particularly in sectors like electronics, textiles and toys. Some analysts do believe that despite the so-called trade "reset" between Beijing and Washington, a larger strategic decoupling between China and the US will continue to benefit India in the long run. For one, there's greater willingness by Narendra Modi's government to open its doors to foreign companies after years of protectionist policies, which could provide tailwind. India and the US are also negotiating a trade deal that could put Asia's third-largest economy in a sweet spot to benefit from the so-called "China exodus" - as global firms shift operations to diversify supply chains. India has just signed a trade pact with the UK, sharply cutting duties in protected sectors like whiskey and automobiles. It offers a glimpse of the concessions Delhi might offer Trump in the ongoing India-US trade talks. But all of this optimism needs to be tempered for more reasons than one. Apart from the fact that China is now back in the running, companies are also "not entirely writing off other Asian competitors, with countries like Vietnam still on their radars", economists Sonal Verma and Aurodeep Nandi from Nomura said in a note earlier this month. "Hence, for India to capitalise on this opportunity, it needs to complement any tariff arbitrage with serious ease-of-doing-business reforms." A tough business climate has long frustrated foreign investors and stalled India's manufacturing growth, with its share of Gross Domestic Product (GDP) stuck at around 15% for two decades. The Modi government's efforts, such as theProduction Linked Incentive (PLI)scheme, have delivered only limited success in boosting this figure. The government's think tank, Niti Aayog, has acknowledged India's "limited success" in attracting investment shifting from China. It noted that factors like cheaper labour, simpler tax laws, lower tariffs, and proactive Free Trade Agreements helped countries like Vietnam, Thailand, Cambodia, and Malaysia expand exports - while India lagged behind. Another major concern, says Nomura, is India's ongoing reliance on China for raw materials and components used in electronics like iPhones, limiting Delhi's ability to fully capitalise on supply chain shifts. "India's earnings from making iPhones will only rise if more of the phone is made locally," Mr Srivastava told the BBC. According to him, right now Apple earns over $450 per iPhone sold in the US while India keeps less than $25 - even though the full $1,000 is counted as an Indian export. "Just assembling more iPhones in India won't help much unless Apple and its suppliers also start making components and doing high-value work here. Without that, India's share stays small, and the export numbers go up only on paper -possibly triggering more scrutiny from the US without real economic gain for India," Mr Srivastava said. The jobs created by such assembly lines aren't very high quality either, says GTRI. Quite unlike companies like Nokia which set up a factory in the southern city of Chennai in 2007 where suppliers moved in together, "today's smartphone makers mostly import parts and push for lower tariffs instead of building supply chains in India", explained Mr Srivastava. He noted that, in certain instances, the investment made could be lower than the subsidies received under India's PLI scheme. Finally there are concerns that Chinese exporters could try to use India to reroute products to the US. India doesn't seem averse to this idea despite the pitfalls. The country's top economic adviser said last year that the country should attract more Chinese businesses to set-up export oriented factories and boost its manufacturing industry – a tacit admission that its own industrial policy hadn't delivered. But experts caution, this could further curtail India's ability to build local know-how and grow its own industrial base. All of this shows that beyond the headline-grabbing announcements by the likes of Apple, India is still a long way from realising its factory ambitions. "Slash production costs, fix logistics, and build regulatory certainty," Mr Srivastava urged policymakers in a social media post. "Let's be clear. This US-China reset is damage control, not a long-term solution. India must play the long game, or risk getting side-lined." Follow BBC News India onInstagram,YouTube,TwitterandFacebook
Apple boosts India's factory hopes - but a US-China deal could derail plans
TruthLens AI Suggested Headline:
"US-China Trade Reset Poses Challenges for India's Manufacturing Ambitions"
Bbc News
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TruthLens AI Summary
India's aspiration to become a global manufacturing hub faces significant challenges following a recent trade 'reset' between the United States and China. The agreement, which resulted in a dramatic reduction of tariffs on Chinese goods, poses a threat to India's manufacturing ambitions as investment that was shifting from China to India may now 'stall' or even reverse. Ajay Srivastava from the Global Trade Research Institute highlights that while India's low-cost assembly lines may persist, the potential for value-added growth is jeopardized. This change in sentiment starkly contrasts with the optimism observed in Delhi when Apple announced plans to shift iPhone production to India. However, President Trump has advised Apple against building in India, citing high tariffs. Despite these setbacks, some economists believe that India remains well-positioned as an alternative supplier to the US, especially since a significant portion of its exports overlaps with those from China. Recent data shows a surge in new export orders for Indian manufacturers, indicating a growing opportunity for India to capitalize on the trade diversion caused by the US-China tensions.
Nevertheless, analysts caution that India must overcome several obstacles to fully realize its manufacturing potential. While the Modi government is making strides to attract foreign investment through initiatives like the Production Linked Incentive scheme, the country still faces challenges in the ease of doing business and remains heavily reliant on Chinese imports for raw materials. Experts argue that merely assembling products like iPhones in India will not suffice; there is a pressing need for local component manufacturing and high-value production to increase India's share of earnings from these exports. The past experiences of companies like Nokia illustrate the importance of establishing comprehensive supply chains within India. Furthermore, there are concerns about the possibility of Chinese exporters using India as a conduit for rerouting goods to the US market. To navigate these complexities, India must implement strategic reforms, enhance logistics, and create a stable regulatory environment to ensure it does not fall behind in the global manufacturing landscape. Srivastava emphasizes that while the recent US-China trade developments might offer temporary relief, India must adopt a long-term approach to secure its position in global manufacturing.
TruthLens AI Analysis
The article provides insight into the evolving dynamics of global manufacturing, particularly focusing on India's aspirations to become a major manufacturing hub as tensions between the US and China shift. The piece highlights the impact of recent changes in US-China trade policies on India's manufacturing prospects, especially in light of Apple's potential shift in production from China to India.
Trade Reset Implications
The announcement of a "trade reset" between Washington and Beijing could significantly affect India’s ambitions to attract manufacturing investments that were previously moving from China. With tariffs on Chinese goods being reduced, there is a concern that investment flows could reverse, undermining India's competitive edge in manufacturing. This indicates a delicate balance in international trade relations and how quickly they can shift based on political negotiations.
India's Manufacturing Resilience
Despite the potential setbacks, the article notes that India has been making strides in manufacturing, with recent data showing a surge in new export orders. This suggests that Indian manufacturers are beginning to fill the gap left by Chinese producers, signaling a resilient manufacturing sector. However, experts warn that while low-cost assembly capabilities may remain viable, the potential for value-added growth is at risk. This highlights a critical issue for India—transitioning from basic assembly to more sophisticated manufacturing processes.
Perception Management
The piece aims to shape public perception regarding India's role in the global supply chain. By emphasizing Apple's interest in Indian manufacturing, the article presents a narrative of opportunity that could inspire confidence among stakeholders. Yet, there is also an underlying caution about the fragility of this progress in the face of geopolitical developments. The article could be seen as promoting optimism for India's manufacturing aspirations while simultaneously acknowledging the external challenges posed by US-China relations.
Trustworthiness and Manipulative Potential
The article generally presents factual information, supported by quotes from analysts and recent economic data. However, the framing of India's potential as a manufacturing hub versus the risks posed by US-China negotiations could be interpreted as somewhat manipulative, aiming to rally support for India's manufacturing initiatives. The choice of language and emphasis on certain aspects of the trade dynamics may suggest a bias towards fostering a positive outlook for India's economy.
Societal and Economic Impact
The implications of this article could extend to various sectors, influencing investor sentiment and potentially affecting stock markets, particularly those related to technology and manufacturing. Companies like Apple and Indian manufacturers stand to gain from shifts in production strategies, which could drive stock performance in these sectors.
Global Power Dynamics
This news piece fits into the broader narrative of shifting global power dynamics, particularly as countries reassess their supply chains in response to geopolitical tensions. It reflects the current concerns regarding reliance on Chinese manufacturing and the search for alternatives, which resonates with ongoing discussions about global trade strategies.
AI Involvement
While it's difficult to ascertain the exact role of AI in this article’s creation, it’s possible that AI tools were used for data analysis or trend forecasting, given the quantitative nature of some of the information presented. The article's structure and clarity may benefit from such technologies, aiding in the logical flow of arguments.
The article serves to inform readers about the complexities of international trade relationships and their implications for India, while also promoting a narrative of hope amidst uncertainty. It effectively communicates the current state of affairs in manufacturing and trade, though readers should remain critical of the potential biases in the framing of the narrative.