While the specific policies of a second Trump administration remain to be seen, the potential for renewed US-China tensions underscores the importance of supply chain resilience. India, however, would likely face several challenges and opportunities
With the possibility of Donald Trump returning to the White House, businesses must consider how his trade policies could affect their supply chains. Trump’s previous administration took a hardline stance on China, implementing tariffs and restricting technology exports. A second Trump term could lead to further decoupling between the US and China, disrupting global supply networks.
Image source: Deloitte
Renewed Trade Tensions with China
If elected, Trump would likely renew his “America First” trade agenda, focusing on reducing the US trade deficit and protecting domestic industries. This could mean higher tariffs on Chinese imports and tighter restrictions on technology exports to China. The semiconductor industry would be particularly vulnerable, as the US currently provides 75% of the world’s electronic design automation and IP cores.
According to a Deloitte report, titled Supply chain resilience in the face of geopolitical risks – preparing for the tumult ahead, the US and China is likely to reduce interdependence in critical industries like semiconductors while maintaining trade in other areas. However, a Trump presidency could accelerate this process, leading to a more severe “decoupling” scenario. In this case, the US and China would effectively stop all trade of dual-use goods and their components, disrupting production across a broader range of products.
Diversifying Supply Chains
To mitigate the risks of US-China tensions, companies may need to diversify their supplier base and manufacturing locations. The report recommends reviewing competitive strategies to identify critical inputs and their geographic origins. Scenario analysis can help businesses understand how different geopolitical scenarios would impact their operations and what alternatives are viable.
Shifting production to new countries requires carefully weighing factors like regulatory environments, workforce skills, and infrastructure. Companies should prioritise changes that can be made in the near-term or would be helpful across most scenarios. Investments that provide the option to take future action may also be prudent.
Navigating Geopolitical Uncertainty
Remaining competitive in an era of heightened geopolitical risk will require ongoing monitoring and adaptation. Customised news monitoring can help spot developments that raise the probability of particular scenarios materialising. Proposals for new investments, products, and market expansions should be tested against potential geopolitical disruptions.
Impact on India from Heightened US-China Tensions
In the event of increased strategic competition or decoupling between the US and China, India would likely face several challenges and opportunities:
- Disruption to Trade and Supply Chains: As the US and China restrict trade of critical goods, India could see disruptions to its own supply chains that rely on components or materials from China. This could impact industries like electronics, batteries, and telecommunications equipment.
India may need to diversify its supplier base and find alternative sources for these key inputs, which could increase costs. However, it may also present opportunities for India to expand its own domestic manufacturing capabilities in these strategic sectors.
- Geopolitical Positioning: Heightened US-China tensions could push India to take a more assertive geopolitical stance, potentially aligning more closely with one side or trying to balance between the two. This could impact India’s diplomatic and economic relationships.
The US may seek to strengthen ties with India as a counterweight to China, offering incentives and support. Conversely, China may try to draw India into its orbit to offset US influence. India will have to carefully navigate this dynamic to protect its own interests.
- Investment and Technology Flows: Restrictions on US-China investment and technology transfer could create openings for India to attract more foreign direct investment, particularly in high-tech industries. However, India would need to ensure its regulatory environment and infrastructure can effectively absorb these flows.
Alternatively, India may face challenges if US-China decoupling leads to the emergence of separate technology ecosystems that India has to choose between, risking loss of interoperability. Maintaining access to both systems could be crucial.
Overall, the impact on India will depend on how it positions itself strategically and how effectively it can adapt its industries and policies to capitalise on the shifting geopolitical landscape. Proactive planning and flexibility will be key for India to navigate the challenges and opportunities ahead.
Inaction risks ceding market share to competitors better prepared to navigate the turbulence ahead. By proactively assessing and adjusting to geopolitical risks, companies can position themselves to lead in an increasingly complex global environment. While the specific policies of a second Trump administration remain to be seen, the potential for renewed US-China tensions underscores the importance of supply chain resilience.