Home / News / India /  India yet to capitalize as US funds, firms flee China

India is yet to take advantage of the ongoing flight of American capital and companies from China, analysts said, as US President Donald Trump escalated the trade war with China on Sunday with 15% tariffs on more than $125 billion of Chinese goods.

The Chinese have placed themselves in a bad situation, as some 13% of certain companies “are going to be leaving China in the not-too-distant future", Trump suggested on Friday. “I think it is going to be much higher because they cannot compete with the tariffs (imposed on the Chinese goods)," he said.

American companies, which seem frustrated with the administration’s trade war with China, are now scrambling to limit their exposure to China, in some cases shifting production other countries such as Vietnam, to avoid tariffs that will soon reach as much as 30%, The New York Times reported. These companies are increasingly locating their operations in Vietnam, despite difficulties involved in shifting production activities from China because of established supply chains.

In contrast to Vietnam, India is yet to figure as a major destination for American companies leaving China.

However, “toymaker Hasbro and clothing retailers like Express and Abercrombie and Fitch have said they will shift their supply chains to emerging manufacturing hubs in Vietnam, India and elsewhere," the NYT report said.

In response to the US action, China has levied 5% additional tariff on American goods, including American crude oil products for the first time from Sunday. Beijing chose to include several politically-sensitive items in its list of $ 75 billion American products, particularly farm products from the mid-west American states that are crucial for Trump’s electoral prospects for his second term next year. China has levied additional tariffs of 5% and 10% on 1,717 items of a total of 5,078 products originating from the US.

In addition to unilateral tariffs, the US administration has called for new restrictions through export controls that would stop American companies from providing sensitive technology products.

The US-China trade war that began last year is now entering a period of rapid escalation as China has made it clear that it will not yield under pressure of Trump’s threats and demands that call for major structural changes in China’s industry and economy. The US wants China to enforce stringent intellectual property laws to stop the alleged theft of technologies and eliminate industrial subsidies.

Incidentally, Trump succeeded in forcing Japan and the European Union countries, especially France, at the just-concluded G-7 leaders meeting in Biarritz, France, to agree to Washington’s demands such as more purchases of soybeans and beef by Japan and phased removal of France’s digital tax on services.

However, he has not been able to clinch such a victory with China, which is yet to show any sign of backing down from its position for balanced outcomes, according to a report in the latest edition of The Economist.

The two sides are scheduled to hold negotiations this month, but prospects for an early breakthrough seem grim. “The trade war has been on a slow burn for a while, but things are now really ramping up in a hurry," said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics, who was quoted in The New York Times on 1 September.

China has maintained that it is prepared to agree to a balanced deal with the US involving the removal of tariffs on Chinese goods as well as the restrictions on the sale of sensitive technology products to Chinese telecom companies, particularly Huawei, said analysts.

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