Needed an Apple encore

India can do better in electronics exports

The World Trade Organization has revised its merchandise trade volume growth projection for 2024 to 2.6 per cent, down from its October estimate of 3.3 per cent. While slower global trade growth will affect prospects, India should focus on emerging possibilities. The US and China, for instance, have been in a trade war — alternately hot and cold — for at least the past five years. The US initiated this shift by imposing a 25 per cent tariff on certain Chinese imports into the country, especially intermediate goods, in July and August of 2018. Further tariffs were imposed over the course of the next year. In total, the import lines affected were approximately $350 billion in value. But, recognising the effect that such tariffs might have on consumer prices, then President Donald Trump stopped short of extending the tariff hikes as planned. Thus, for example, laptop computers, computer monitors, mobile phones, video game consoles, and toys were not covered by higher import duties, an extension that had been planned for December 2019. Although many items were never covered by higher tariffs, there was nevertheless a shift in the supply chains for those items. While imports of mobile phones from China continued to increase, by 10-15 per cent, imports from the rest of the world shot up by over 70 per cent.
 

What is relevant for India is that it seems to be a relatively minor player in this derisking process. Several reports published by the industry group India Cellular & Electronics Association (ICEA) over the past years have underlined the point that while Indian exports have indeed increased, the lion’s share of any benefits from this restructuring of trade has gone to countries like Vietnam. As this newspaper has reported, the latest data shows that Vietnam’s electronics exports rose from $12.1 billion in 2018 to $51.2 billion in 2023, over 28 per cent of the total non-Chinese incremental electronics imports into the US in that time. India’s, by comparison, rose to $8.9 billion from $1.3 billion — only 5.5 per cent of the non-Chinese increment in electronics imports. Companies are choosing voluntarily to reduce Chinese components in those parts of their supply chains that service the US market — and several of them choose countries other than India for this purpose.
 

Why are other countries performing better than India in substituting for China in this supply chain? Two reasons stand out. First, if they have low, stable tariff and trade regimes. Naturally, this favours countries like Mexico, which are in existing trade pacts. It also benefits those, like Vietnam, which have pursued predictable, low-tariff trade policy. Companies do not like being ambushed by shifts in duties or tariff restrictions. India, however, has increased tariffs with a view to increasing domestic production. The second reason is the broader business climate. India has successfully wooed Apple and its subcontractors, and the seven-fold increase in electronics exports since 2018 can be laid at the doorstep of this achievement. But its peers have done better in their pro-business policy. Vietnam, for example, was the chosen relocation destination for both Samsung and LG. The former entity exports from Vietnam to 123 countries, but from India to only a couple of dozen. There remains a window of opportunity for India to take advantage of companies’ anticipating US-led decoupling from China. But, as investments in Indian competitors fructify, that window of opportunity could close.