India looms as an increasingly attractive source of production amid talk of re-shoring and home shoring
 As the US election is in the offing, there is little can be said with certainty about America's China trade policy. Except to say that as divided as the Western world is, leftists and rightists share much the same policy towards China, that of suspicion, bordering on hostility.
Back in 2016, one was struck talking US politics at an international shipping conference in Shenzhen of how often senior shipping executives dismissed Donald Trump as a presidential candidate yet fervently endorsed his tough China policy.
Much has happened since, of course, but that united China policy t'wixt right and left has survived through the Biden administration. This has led to a trend, equally pronounced in the US and Europe, called "decoupling" accompanied by policies of re-shoring, near-shoring and home-shoring.
A substantial populist force has lobbied to end the export of Western manufacturing jobs, which accounts for the demand of home-shoring that has taken place since. As domestically popular as home-shoring is, high volume domestic production has been impossible because western workers’ wages are so much higher than those in Asia.
Thus, western expensive, specialised products and services can only be sold in high-end markets, providing too few domestic jobs to be of political value. Near-shoring from Mexico or Romania is something of a half-way measure that can profitably employ workers in mid-range technologies such as white goods and auto parts. But this hardly pleases the constituents one hopes to please.
In bulk loading sectors, where employment is high, is only possible in low-end consumer goods sectors - footwear, textiles, cell phones etc. Again results please BCOs, but no one else in Kansas City or Coventry.
In the face of such situations, the obvious answer are tariffs against foreign goods, which many see as the death knell of free trade, and making goods more costly for domestic consumers in the West. At the same time, it makes sense to bring back domestic sourcing. Perhaps, trade-killing tariffs might be mitigated with equal access to Asian markets. China has refused such access, but perhaps India might be willing.
Does making America great again mean returning to the good old days of Father Knows Best with stay-at-home-mums as it days of yore? Perhaps. It was a time when the West made its own sheets, shirts, and shovels. Dad went to the plant and put in his 48 hours, and Mum saw to it that the kids were fed and shod and took care of everything else. It was an easier job, but one in which one was on call 24/7. But if such a scheme were to work, it would require what unions of the 1940s and '50s called a "decent family income". But in today's Western world of DINKs (double income no kids) that is no longer the case.
Perhaps a Trump presidency will steer the West in that direction, but it is more likely that would take time. Apart from continuing the current de-coupling, it will likely focus on its green progressive agenda to weaken America and the West. The new progressive idea is to achieve greater global equality by having the West as poor as the third world.
So whoever wins in November, things will happen in east-west trade, as indeed, they are already happening. There has been much re-shored manufacturing transferred to Vietnam, which has made commendable progress. But Vietnam remains a communist dictatorship, which the west has learned can go from the benign state to the nasty from one year to the next. Promises made at one time can be reneged later, as there is no rule of law to protect the sanctity of contracts.
Not so, India. India, while red-tape-entangled and chaotic, has been a stable democracy for 70 years and will likely remain so. India certainly has an edge to be an alternative manufacturing site of choice for more practical reasons. Rule of law is venerated and has a venerable history. Entry level salaries for workers in India start INR15,000 (US$196), while in China the salaries are about three times higher, according to a consultancy paper from Shenzhen-based Dezan Shira & Associates.
The consultancy paper points out that the decoupling does not only affect the West, but the quasi-West as well. For them, "India will emerge as an alternate manufacturing destination. Many countries like Japan, US, and South Korea are over-dependent on China and that is now very apparent,” said the paper.
Apart from low cost of labour, India also offers lower operating costs, competitive infrastructure, special economic zones (SEZs) that offer duty free exports among other benefits, incentives to boost domestic manufacturing and business-friendly policies.
"Plus," said the Dezan Shira & Associates study, "while China is engulfed in a trade war with the US, India has a comparatively good relationship with America. Further, businesses in India have started building up local supply chain capacity in order to de-risk from China and lower manufacturing costs. This development will definitely be of interest to foreign companies looking to exit China or expand their manufacturing operations."
According to the World Economic Forum, India is expected to be the third largest consumer market by 2025, just behind the US and China. In the report, it was said, “India’s top 40 cities will form a US$1.5 trillion opportunity by 2030, many thousands of small urban towns will also drive an equally large spend in aggregate. In parallel, there will be an opportunity to unlock nearly $1.2 trillion of spending in developed rural areas by improving infrastructure and providing access to organised and online retail.”
Rising affluence is the biggest driver of this growth, followed by the change in consumer behaviour and spending patterns, especially in lower-tier cities.
Growth in digital connectivity, infrastructure development, coupled with rising household incomes and an increase in India’s consumer spending represent massive opportunities that lie in the Indian market.
It is also true that other Asian economies, notably the Philippines and Indonesia have similar capabilities as Vietnam does, but they also have a history of either difficulty with hostile religious beliefs in which the vast majority of the people can be influenced by the militant para-militaries of the few, to suffer a vulnerability to Chinese bullying either physically as in the case of the Philippines or economically in the case of Australia. |
