Chennai: Easing of trade tensions between the US and China will undermine the possible gains for India from the ‘China plus one’ strategy. The US has cut tariffs on Chinese goods from 145 per cent to 30 per cent, while the latter has reduced them from 125 per cent to 10 per cent. This agreement would be in place for 90 days till both countries engage in discussions. The re-engagement of the US with China undermines the “China Plus One” strategy that saw firms move manufacturing to India, Vietnam, Indonesia and Mexico. While low-investment assembly operations may linger in India for now, deeper manufacturing—the kind that builds real industrial ecosystems—may stall or even return to China, finds GTRI. Though China’s tariffs are 20 per cent higher than India’s current basic tariff of 10 per cent, there is no massive gap that would make India an attractive destination for companies to relocate. Since the basic tariff During the interim period, Indian companies in sectors like textiles, leather and engineering products have been receiving orders from the US through Chinese counterparts, who did not want to lose their US clients. With the tariffs getting lowered, this new channel of US orders will dry up immediately. As part of the trade deal being negotiated with the US, India was asked to increase the imports from that country. According to FIEO, India had proposed to buy more shale gas petroleum, petrochemicals, polymer, defence equipment, aircrafts, high-tech chips and cars within a certain value threshold to bridge the trade surplus with the US. With US-China trade expected to resume, India may not get any major benefit from the deal in return. “Looking at the US-UK deal, it is possible that the US may retain the basic tariff of 10 per cent on most of the products even after the deal and offer zero per cent duty on very few products,” said Ajay Srivastava, founder, GTRI. Beyond trade policy, India must urgently cut production costs, overhaul logistics, and improve regulatory predictability. As it negotiates future FTAs, India must resist pressure to open up sensitive sectors like automobiles and pharmaceuticals without meaningful reciprocal gains, said GTRI.
Source link
