Trump Tariff Can Put India At A Vantage Point

However, this strategy has been disrupted now after U.S. President Donald Trump announced a baseline tariff of 10% and reciprocal tariffs for individual countries. This move has raised the average tariff imposed by the U.S. from 2.3% to 26%. The Trump reciprocal tariff could lead to the third major supply chain realignment in just a decade.

As the U.S. imposed restrictions on imports from China, Chinese manufacturing companies relocated to offshoring destinations to avoid scrutiny. The supply chain shifted from mainland China to countries like Mexico, Canada, Vietnam, Taiwan, Indonesia, Thailand, and others, making Asian countries a hub for global manufacturing. What worked in favour of the "China Plus One" strategy was low-cost labour, economies of scale, and lower tariff rates, which encouraged developed markets to shift manufacturing from China to these countries.

However, this strategy has been disrupted now after U.S. President Donald Trump announced a baseline tariff of 10% and reciprocal tariffs for individual countries. This move has raised the average tariff imposed by the U.S. from 2.3% to 26%. The Trump reciprocal tariff could lead to the third major supply chain realignment in just a decade.

As the U.S. imposed restrictions on imports from China, Chinese manufacturing companies relocated to offshoring destinations to avoid scrutiny. The supply chain shifted from mainland China to countries like Mexico, Canada, Vietnam, Taiwan, Indonesia, Thailand, and others, making Asian countries a hub for global manufacturing. What worked in favour of the "China Plus One" strategy was low-cost labour, economies of scale, and lower tariff rates, which encouraged developed markets to shift manufacturing from China to these countries.

However, the "China Plus One" strategy has been neutralised by the U.S. imposing reciprocal tariffs on Asian countries. The six ASEAN countries now face tariffs ranging from 10% to 46%, with Singapore subjected to the lowest rate of 10%.

This brings immense opportunities for India. While the U.S. has imposed a 27% tariff on India, it is relatively lower than many of its Asian peers that benefited from the earlier supply chain shift.

India now stands at a good vantage point, and the Production Linked Incentive (PLI) program can play a crucial role. The new tariff regime could significantly reduce the cost differential between India's manufacturing and that of its Asian peers, many of whom are now charged higher tariffs. This presents an opportunity for India's private sector to actively compete with its Asian counterparts.

If utilised effectively, India can develop manufacturing capabilities in sectors like medical devices, telecom equipment, electronic products, white goods, mobile manufacturing, and semiconductors—many of which are already covered under the PLI scheme.

India's Free Trade Agreements with Japan, South Korea, and ASEAN could further facilitate the movement of supply chains to India. The emerging supply chain route, IMEEC (India-Middle East-Europe-U.S. Corridor), is also taking shape.

While details remain unclear, Indian companies in the pharmaceutical sector may escape tariffs, and the auto sector is already subject to a 25% tariff.

India could further benefit from a bilateral trade agreement with the U.S., expected by November this year. India has offered to cut tariffs on U.S. imports, including certain agricultural products. Whether this will lead to a reduction in India's tariff rate remains to be seen, but the opportunity is certainly there.

For years, India struggled to position itself as a manufacturing hub comparable to its Asian peers. Now, Trump's policies may provide the opening India needs.