Caught in the crossfire of a steep 245 percent tariff hike on imports from China by the Trump administration, China has begun to lose its hegemony in global supply chains. In the aftermath, a new opportunity is emerging for India to position itself as a global hub for supply chain manufacturing.

In the post-COVID-19 era, Vietnam initially rose as an alternative to China. However, its appeal as a low-cost manufacturing hub for exports to the US has been dented by a 46 percent tariff hike imposed by Washington—second only to that levied on China.

This has opened up a window of opportunity for India to present itself as a more viable alternative to both China and Vietnam in the global supply chain landscape.

The United States has now emerged as the largest destination for India’s exports of electronic goods and auto parts—two key pillars of supply chain manufacturing. Exports of electronic goods to the US soared to USD 10.5 billion in 2023–24, up from USD 1.6 billion in 2018–19, marking a staggering growth of 593.3 percent. Likewise, exports of auto components rose to USD 1.9 billion in 2023–24, from USD 1.2 billion in 2018–19—an increase of 46.6 percent.

In terms of share, the US accounted for 33.8 percent of India’s total electronic goods exports and 24.2 percent of auto component exports in 2023–24.

Several factors contributed to this growth, including the ripple effects of Trump’s trade war with China during his first term, followed by supply chain disruptions from the COVID-19 pandemic.

Walmart, Cisco Shift to India

Reuters reported that Walmart had increased its sourcing from India while reducing dependence on China, aiming to cut costs and diversify its supply chain. Similarly, Cisco announced its decision to start manufacturing in India, stating: “Fueled by a rapidly growing digital economy, India is a focal point of innovation and business for Cisco.”

Nikkei Asia echoed this sentiment, noting that “India can be the biggest winner in the supply chain shift from China,” citing the country’s new initiatives in semiconductor manufacturing. Until recently, India had no semiconductor fabrication plants, but three companies have now committed to setting up such facilities in the country.

India’s Manufacturing Surge

The COVID-19 pandemic reshaped the global manufacturing landscape. As China’s dominance began to wane and investors shifted their focus to Southeast Asia, Vietnam temporarily benefited. However, India responded with strategic reforms to strengthen its manufacturing base.

Indian policymakers revamped the “Make in India” initiative, shifting focus toward supply chain manufacturing. The Production Linked Incentive (PLI) scheme was restructured, offering more generous incentives and covering a broader array of industries. This helped catalyze a surge in manufacturing, especially in emerging sectors.

The electronics sector in particular experienced remarkable growth. Production jumped to USD 101 billion in 2023–24, from USD 48 billion in 2017–18. Of this, USD 86 billion came from finished products, while USD 15 billion came from electronic components.

Likewise, the auto components industry maintained steady growth, expanding by 9.8 percent in 2023–24.

While China remains a major supplier of components and intermediates for India’s supply chain manufacturing, dependency is gradually declining. The share of electronic goods imported from China dropped to 37.2 percent in 2023–24 from 41.9 percent in 2020–21. Similarly, auto component imports from China fell to 23.4 percent from 30.3 percent during the same period.

Vietnam’s Rise, Hidden Chinese Influence

Trump’s escalating trade war with China, followed by the pandemic, pushed Beijing to route exports to the US through Vietnam, turning it into a surrogate workshop. As a result, Vietnam emerged as the sixth-largest exporter to the US.

However, Vietnam’s growing presence in the American market has been heavily reliant on Chinese inputs. According to one study, the value addition by Chinese materials in Vietnamese goods exported to the US stood at approximately 30.4 percent in 2022. This underscores the extent to which Chinese supply chains continue to underpin Vietnam’s export success.

It is argued that Vietnam’s surge in US-bound exports was largely driven by a “backdoor entry” strategy for Chinese goods, helping Beijing circumvent Washington’s tariffs during Trump’s first term.

India’s Strategic Moment

In this context—marked by fresh US scrutiny of tariff offenders—India has a unique opportunity to step in as a more reliable and less controversial partner for the US in supply chain manufacturing.  A complementary—not adversarial—partnership with China could also benefit India in tapping the US market, especially since India has incurred a relatively lower tariff increase of 27 percent. However, Chinese investments in India remain tightly controlled and are subject to stringent security-based screening, with automatic approvals barred.

(The writer is an Indian trade consultant and analyst. Views are personal. He can be contacted at subratamajumder0604@gmail.com)