India’s longstanding aspiration to emerge as the world’s preeminent global manufacturing hub is currently encountering a substantial obstacle. As the nation commenced significant progress in its transformation into the “factory of the world,” a new trade agreement between the United States and China jeopardizes these advancements. The changing geopolitical and economic situation casts significant doubt on India’s capacity to replace China as the preeminent centre for global manufacturing.
The core of this development is the recent agreement established between Washington and Beijing in Switzerland, which significantly diminished the punitive tariffs levied by the US on Chinese products. During the Trump administration, taxes on specific Chinese goods escalated to an extraordinary 145%, aimed at penalizing China for inequitable trade policies and incentivizing corporations to shift manufacturing to alternative nations, such as India. Nevertheless, under the new deal, these levies have been significantly reduced to approximately 30%. Currently, tariffs on Indian goods are roughly 27%, placing India at a disadvantage in the global trade landscape.
This transition has significant ramifications. For several months, numerous investors and global organizations regarded India as a compelling option to China. The nation’s substantial labour pool, enhancing infrastructure, and advantageous government efforts like “Make in India” render it an appealing location for corporations seeking to diversify their supply chains and mitigate the rising prices and hazards linked to China. However, the decrease in US taxes on Chinese imports has considerably lessened the motivation to relocate production from China.
Ajay Srivastava, the director of the New Delhi-based think tank Global Trade Research Institute (GTRI), offers a stark evaluation of the circumstances. Srivastava asserts that the investment transitioning from China to India may either cease or revert to China. Inexpensive assembly lines may remain in India, although value-added manufacturing and innovative, successful sectors are jeopardized. His view underscores a significant difficulty confronting India: although it may sustain low-end manufacturing and assembly positions, recruiting advanced, high-value manufacturing, such as electronics, automotive components, and precision machinery, continues to be elusive.
This scenario sharply contrasts with the excitement that enveloped New Delhi than a month prior, when Apple Inc., one of the globe’s most valuable corporations, declared intentions to relocate the majority of iPhone manufacture for the US market from China to India. This declaration was regarded as a pivotal milestone, indicating that India was finally ascending to the upper tiers of global industry. Apple’s action represented a wider trend among technology behemoths aiming to diversify production away from China.
Nonetheless, Apple’s strategy today seems ambiguous. President Donald Trump subsequently disclosed that he counselled Apple CEO Tim Cook against establishing a substantial manufacturing plant in India. Trump’s justification was unequivocal: India is “one of the highest tariff-paying nations globally.” Exorbitant tariffs render manufacturing in India less economically appealing relative to China, particularly as the US has diminished its trade penalties on Chinese products.
The tariff discrepancy highlights a more extensive structural issue for India. The nation’s trade and industrial policies, however ambitious, have not yet established a competitive or investor-friendly climate comparable to that of China. Complex regulatory frameworks, infrastructure constraints, labour market rigidities, and logistical inefficiencies persistently hinder substantial foreign investment in manufacturing. Despite the government’s implementation of reforms, progress has been slower than expected, and India continues to fall short in ease of doing business indicators relative to China and other Southeast Asian rivals.
Moreover, China’s manufacturing ecosystem is unparalleled in its magnitude, integration, and complexity. Years of investment in infrastructure, technology, and supply chain networks have established China as a deeply embedded participant that firms find difficult to forsake. The US-China trade war had momentarily altered this assessment, rendering alternatives such as India more attractive; but, the new agreement diminishes the necessity to transfer.
For India, this new reality necessitates a renewed commitment to enhancing the basics of its manufacturing sector. Relying solely on tariff differentials or geopolitical issues is insufficient; India must cultivate a truly competitive landscape. This involves perpetuating the simplification of laws, enhancing infrastructure, investing in talent development, and cultivating innovation ecosystems capable of attracting not only assembly lines but also advanced manufacturing activities.
Furthermore, India must meticulously manage its commercial connections with both the United States and China. Although China continues to be a significant global economic force, India’s ambitions are largely contingent upon its capacity to interact with the US market as a principal export destination. The fluctuations in tariffs will remain essential in influencing investment flows. Future trade agreements or tariff discussions must take into account India’s distinctive position and challenges to effectively seize the forthcoming wave of global manufacturing.
The latest US-China trade agreement undermines India’s aspiration to become the global manufacturing hub. The repeal of tariffs on China diminishes the economic motivations for corporations to relocate manufacturing to India, jeopardizing the momentum that had started to develop. Although India may continue to gain from low-end manufacturing and assembly activities, its aspiration to recruit high-value, innovative industries is jeopardized. To achieve its industrial aspirations, India must transcend tariff arbitrage and concentrate on establishing a holistic, investor-friendly ecosystem. Absent these strategic initiatives, India’s aspiration to become a global manufacturing hub may persist as merely a delayed dream, hindered by the fluctuating dynamics of international trade and diplomacy.
