| Dear Express Reader, Donald Trump’s trade war is reconfiguring global manufacturing and supply chains. And the extent of realignment is likely to be significant. As per reports, Apple is now looking to make all its iPhones for the US market in India by 2026, as it attempts to bring down its reliance on China as an export base. If these plans fructify — the tech giant currently sells in excess of 60 million iPhones in the US — it would imply that roughly a quarter of all iPhones sold globally could be from India. This doubling down by the US tech major on its India operations — the company recently exported 600 tons of phones from India “to ensure sufficient inventory” in the US — sends an important signal about the country as an export hub, more so during these uncertain times. Other companies with production facilities in countries such as Vietnam — the Southeast Asian nation has been slapped with a reciprocal tariff of 46 per cent — are also said to be exploring a similar move. This would be a significant development. Alongside these shifts, a strengthening of the supplier ecosystem in the country — for instance, a significant number of Apple’s vendors and suppliers currently manufacture in mainland China — would ensure that the country captures a greater portion of the value added. India was not a big beneficiary during the first round of supply chain reconfigurations. As per a report from OCBC, a Singaporean banking and financial services firm, “The ASEAN-6 region (Indonesia, Malaysia, Philippines, Thailand, Singapore and Vietnam) has benefited from a diversification of global and regional supply chains as well as the adoption of ‘China+1’ strategies.” FDI flows into these countries rose to a staggering $236 billion in 2023, up from an average of around $190 billion in 2020-22. The question, now, is: Can India grab a bigger share this time around? Can the gains in the mobile space be replicated across labour intensive segments such as apparel, footwear, toys and furniture? Can India use the uncertainty in the global economy to its advantage? The current economic environment is indeed quite challenging. In its recent World Economic Outlook, the International Monetary Fund cut its forecast for global growth to 2.8 per cent, down 50 basis points. The outlook for both advanced as well as emerging market and developing economies has been slashed by 50 basis points each. Alongside, the Fund also lowered its projection of global trade by almost half. As per its assessment, it is the emerging market and developing economies that are likely to be affected the most. This slowdown in global growth comes at a time when the Indian economy is also showing signs of weakness. Household consumption is weighed down by the combination of subdued real income growth and high indebtedness. Private sector investments remain muted as companies await greater clarity over demand and remain watchful of a possible surge in exports from countries that will face difficulty in accessing the American market. Alongside, the Union government has committed to the path of fiscal consolidation, implying a contractionary pulse to the economy. The outlook for exports is also marred by uncertainty. However, as Shoumitro Chatterjee has argued (IE, April 4, ‘How to Trump tariffs’), the country’s priority “should be to grow its global market share — regardless of whether global trade itself is expanding.” At a time when other countries are turning their back on globalisation, India’s focus should be to emerge as a safe haven, a country that offers predictability of policy, and embraces openness and freer trade, not protectionism. Signing a deal with the US will send the right signal. An editorial in this paper (IE, April 25, ‘Seal the deal’) noted that it will “help the country avoid reciprocal tariffs, and reduce uncertainty, providing clarity to both global and domestic firms.” However, this alone is not enough. There is no room for complacency. India must push ahead with similar agreements with the EU and the UK and reexamine its position on Asia-centric trade deals such as RCEP. Further, as another editorial in this paper argued (IE, April 4, ‘After the tariffs’), “the Indian government must also pursue a more ambitious and broader agenda for trade reform.” But, even as companies step up diversification of supply chains, and India tries to emerge as a major global export hub, the criticality of China to the global trading system cannot be understated. As an editorial in this paper noted (IE, April 23, ‘New give & take’), “China is at the centre of global manufacturing supply chains. In 2023-24, the India-China bilateral trade stood at a staggering $118.4 billion.” Moreover, companies looking to shift their production out of China are also likely to face some pushback. Reportedly, the plans of a fast-fashion company to relocate some of its production out of the country are being met with opposition from the Chinese government. These rapidly evolving trade dynamics, as an editorial in this paper noted (IE, April 23, ‘New give & take’), will “require deft handling”. Till next week, Ishan Bakshi |
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