Can India Compete with Vietnam in the Wake of the U.S.-China Trade War?

The U.S.-China trade war, which began in January 2018 with tariffs imposed by former President Donald Trump, has led to significant shifts in global trade dynamics. As detailed by Evrim Ağacı from Evrimagacı, Vietnam and Mexico have emerged as key beneficiaries of the trade tensions, with Vietnam now exporting about one-third of its goods to the U.S. and absorbing half of the exports displaced by tariffs on China [665cbcaf].

In the past year, foreign investment in Vietnam surged by nearly 33%, with major companies like Apple and Dell establishing manufacturing operations there. This shift has not only bolstered Vietnam's economy but has also positioned it as a crucial player in U.S. supply chains [665cbcaf].

Meanwhile, Mexico's exports to the U.S. have overtaken those of China, experiencing a 50% increase in Chinese investment in Mexico last year. However, the U.S. trade deficit with Mexico rose by 17% to $152 billion, indicating a complex relationship that continues to evolve amidst the trade war [665cbcaf].

Despite these gains, challenges remain for both Vietnam and Mexico. There is ongoing skepticism from the U.S. and EU regarding Vietnam's market economy classification, and U.S.-Mexico trade relations are strained, complicating the benefits derived from the trade war [665cbcaf].

In addition to these developments, the broader European landscape is adapting as well, with Ireland's trade with China tripling and Poland emerging as the second-largest battery producer globally. This adaptation reflects the shifting global trade patterns influenced by the U.S.-China trade war [665cbcaf].

India, on the other hand, has struggled to capitalize on the trade war. While India's share in U.S. imports rose by only 0.6 percentage points to 2.7% from 2017 to 2023, Vietnam's share increased by 1.7 percentage points to 3.7% during the same period. Taiwan and South Korea also saw growth in their shares, indicating that India is lagging behind its competitors [51b0b551].

The stagnation of India's manufacturing sector, which has remained at 17% of GDP for over a decade, poses significant challenges for Prime Minister Narendra Modi as he attempts to boost this critical area of the economy. An Oxford Economics report highlights that India's heavy reliance on Chinese imports, particularly in semiconductors—67% of which come from China—could risk U.S. trade restrictions [51b0b551].

As the trade war continues, analysts suggest that the U.S. may need to reassess its trading policies with both Mexico and Vietnam to navigate the complexities of these relationships and the evolving global economy. The potential impact of Donald Trump’s return to the presidency and proposed tariffs further complicates the landscape for India and its manufacturing ambitions [51b0b551].