Trump’s Tariffs Paves Way For India To Be Supply Chain Hub, Debilitating Vietnam – Analysis
Amidst Trump’s tariff war, which led to global trade tension, India is to gain a new template to becoma a supply chain hub. It will bid a bold challenge to Vietnam. China lost hegemony with the outbreak of COVID 19 and that in turn gave a new life to Vietnam to be the alternative to China.
Now, with Trump’s Damocles’ sword hanging on Vietnam, which attracted second highest USA import tariff hike (45 percent) , India pins hope for an opportunity to outpace Vietnam in supply chain, with almost half of tariff hike (27 percent).
In a surprise move, supply chain became the biggest attraction in India’s basket for exports to USA. They are electronic goods and auto components. USA emerged the biggest destination for India’s global exports of these two items. They outpaced conventional items like diamonds and textile and garments.
The contours of exports of these two supply chain items to USA registered a sparkling growth since Trump’s first period of Presidency. Factors attributed to these growth were the fall out of Trump’s tariff war against China in his first term of Presidency.
Electronic goods comprise of mainly electronic components and telecommunication equipment. Incidentally, USA emerged the trigger for growth of electronic goods. During the past 5 years, USA was the biggest destination for exports. In 2023-24, USA accounted for 33.8 percent of total export of electronic goods from India.
Similarly, USA emerged the biggest destination for exports of auto components. In 2023-24, it accounted for 24.2 percent of total exports of auto components from India.
With the onset of COVID 19, a dramatic change was drawn in the global landscape of manufacturing for supply chain. China, which topped in manufacturing, receded in its hegemony. Foreign investors were flying out of China and shifted to South East countries. Eventually, Vietnam emerged an alternative for China.
Given the changes in global landscape of manufacturing of supply chain, Indian policy makers refurbished Make in India. They lend a second thought in the concept and shifted focus on supply chain manufacturing. Eventually, PLI (Production Link Incentive) scheme was overhauled. It expanded with more doses of incentives. The expanded PLI worked well. Manufacturing boomed.
Electronic sector experienced a galloping growth in India. Production reached US$101 billion in 2023-24 , from US$48 billion in 2017-18. It comprised of US$86 billion worth finished products and US$15 billion worth electronic components.
Alongside bolstering growth in electronics, India pinned a faster growth in auto components industry. It has shown steady growth by 9.8 percent in 2023-24. Imports too increased. But, the industry maintained a surplus trade balance between exports and imports.
China was the biggest supplier of components and intermediates for supply chain manufacturing in India. In 2023-24, China accounted for 37.2 percent of total import of electronic goods and 23.4 percent in total import of auto components into India.
But, the dependence on China was receding with the growth in domestic production. Shares of imports of electronic goods from China declined to 37.2 percent in 2023-24 , from 41.9 percent in 2020-21 and that of auto components decelerated to 23.4 per cent in 2023-24 from 30.3 percent in 2020-21.
According to Nikkei Asia, “India can be the bigger winner in the supply chain shift from China”. Till now India does not have manufacturing plant for semiconductor devices. Recently, three companies have decided to manufacture semiconductor in India. They are Micron Technology, USA, Renesas Electronics, Japan, in partnership with Star Microtech, Thailand and Tata Electronucs Pvt Ltd, in partnership with Powerchip Semiconductor Manufacturing Corporation, Thailand (PSMC).
Vietnam emerged the competent alternative to China for supply chain, after China’s downturn in hegemony. Vietnam emerged the 6th biggest exporter to USA. Nevertheless, Vietnam’s rising strength to dump in American market relied on Chinese imports.
According to a study, China was the biggest stake holder in value addition of Vietnamese made goods , meant for export to USA. According to a study, value addition by Chinese materials in Vietnamese made goods was nearly 30.4 percent in 2022. This demonstrates that more than one-third of value addition in Vietnamese goods exported to USA were by Chinese supply chain.
It is vehemently argued that the success of Vietnam in American market was mainly due to backdoor entry of Chinese exports to USA to avoid high USA tariff imposed on China during the first term of Trump’s Presidency.
In the event of Trump’s challenge to tariff offenders, a new opportunity has been opened for India to emerge alternative to Vietnam in the global supply chain.
To this end, a complimentary partnership with China for investment is imperative. At present, Chinese investment in India is restricted and barred from automatic approval, owing to security concerns.
