India stands to gain from the shifting trade patterns resulting from the changing geopolitical relations between the US and China, even though its initial progress has been gradual, a report by ratings firm Care Edge said.
The initial impetus for trade decoupling emerged from the broader US trade deficit with China, resulting in the trade war of 2018-19, where Washington slapped tariffs on most imports from Beijing. The trend gained steam during the pandemic era amid supply-chain vulnerabilities and geopolitical concerns as Western economies began actively seeking reliable and resilient supply chains to strengthen domestic companies, the report said.
On the one hand while, US imports from China have contracted between 2018-22, major emerging markets such as Mexico ($111 billion), Vietnam ($78 billion) and India ($31 billion) have managed to increase their exports to the US in the past five years, Care Edge said in the report.
Vietnam, India, and Taiwan have seen significant expansion in computer and electronics exports to the US in the past five years, boasting compound annual growth rates of 42%, 38%, and 27%, respectively.
However, India’s progress, while significant, pales in comparison to Vietnam’s towering $35 billion exports in the segment, against its modest $2.9 billion. Vietnam’s rapid advance, cemented by its early entry into electronics manufacturing, highlights a strategic first-mover advantage, the report said.
Drawing a parallel, India’s current electronics export volume to the US is reminiscent of Vietnam’s 2013 figures, the report said, adding that Vietnam’s export surge took off post-2008, fueled by the US-Vietnam Trade and Investment Framework Agreement.
India’s export surge, which has been picking up momentum since 2018, is a part of a broader Asian trend, Care Edge said, while pointing out that Taiwan, Malaysia, Thailand, South Korea, and Japan have long established significant electronics export footprints in the US.
Apart from the strong growth in the computer and electronics sector, other categories including electrical appliances, machinery, plastic and rubber products have seen double-digit growth annually in recent years. Government programs such as production linked incentives (PLIs), along with the growing interest of foreign companies in setting up manufacturing in India, are helping the country expand its trade presence, the report said while pointing out that a key accomplishment is India’s recent rise as one of the top mobile phone manufacturers.
Despite these advancements, the report highlights challenges in India’s electronic exports, particularly in achieving higher domestic value addition against the current scenario where growth is driven by local assembly units.
The report said that India’s global trade is perking up, gaining from shifts in the trade away from China but, relative to its South Asian neighbors, it hasn’t fully leveraged the benefits of trade decoupling.
Ongoing challenges, particularly with changing global trade rules, underscore the need for India to boost its domestic value creation to emerge as a strong export center, the Care Edge said, while adding that as India progresses in international trade, striking a balance between enhancing competitiveness and addressing global issues is crucial.
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