Chennai: The easing of trade tensions between the United States and China will undermine the benefits India has gained from the China Plus One strategy.
The United States has reduced tariffs on Chinese goods from 145% to 30%, while the latter has reduced it from 125% to 10%. The agreement will last 90 days until discussions between the two countries are in place.
The re-engagement of the United States and China undermines the “China Plus One” strategy that allows the company to move manufacturing to India, Vietnam, Indonesia and Mexico. Gtri found that while operations of low-investment components may continue in India, deeper manufacturing (which builds a true industrial ecosystem) could stall or even return to China.
Although China’s tariffs are 20% higher than India’s current base tariff of 10%, there is no huge gap that makes India an attractive destination for company relocation.
Since the basic tariffs during the temporary period, Indian companies in the fields of textiles, leather and engineering products have been receiving orders from the United States through their Chinese counterparts, and China does not want to lose U.S. customers. As tariffs are lowered, new channels for U.S. orders will immediately dry up.
India was asked to increase imports from the country as part of a trade deal negotiated with the United States. According to FIEO, India recommends buying more shale gas, oil, polymers, defense equipment, aircraft, high-tech chips and cars at a threshold of certain value to bridge the trade surplus with the United States.
With the U.S.-China trade expected to resume, India may not gain any significant gains from the deal. “From the U.S. business agreement, even after the transaction, the U.S. may retain basic tariffs on most products and impose zero taxes on very few products,” said GTRI founder Ajay Srivastava.
In addition to trade policies, India must urgently reduce production costs, overhaul logistics and improve regulatory predictability. Gtri said that as it negotiates a future FTA, India must resist pressure to open sensitive sectors such as cars and medicines without meaningful mutual benefits.
