Why in the News?
Recently, the U.S. has agreed to temporarily reduce its tariffs on Chinese goods from 145% to 30% for 90 days, while China will lower its tariffs on American products from 125% to 10%.
What are the key terms of the U.S.-China trade truce?
|
Why has the U.S. trade deficit with China remained unresolved despite the tariff rollback?
- Temporary and Limited Rollback of Tariffs: The U.S. reduced tariffs from 145% to 30% only for 90 days, which is not a permanent structural solution. Eg: Such short-term measures may ease tensions but do not address long-term trade imbalances rooted in production and consumption patterns.
- Core Issue of Trade Imbalance Not Addressed: The agreement focuses on reducing tariffs but does not compel China to increase imports of U.S. goods or alter its export-driven model. Eg: The U.S. continues to import large volumes of electronics, machinery, and pharmaceuticals from China while exporting relatively fewer goods.
How might the U.S.-China agreement affect India’s position in the China+1 manufacturing strategy?
- Reduced Urgency for Diversification: The easing of tensions may lead global firms to reconsider shifting away from China, reducing momentum behind the China+1 strategy. Eg: Companies that were exploring alternatives like India or Vietnam may delay or reverse their relocation plans.
- India’s Limited Gains from China+1 Exposed: India has not fully leveraged the China+1 opportunity due to infrastructure and policy bottlenecks, making it less competitive. Eg: Despite global supply chain shifts during the trade war, India attracted far less investment than Vietnam or Indonesia in electronics and apparel sectors.
- Renewed Focus on China’s Scale and Efficiency: Investors might return to China due to its unmatched manufacturing scale, efficient logistics, and mature supply chains. Eg: Apple’s decision to continue manufacturing a large share of its products in China despite exploring India illustrates the challenge India faces in replacing China.
| Note: China+1 is a business strategy adopted by multinational companies to diversify their manufacturing operations and supply chains beyond China, by adding at least one other country—hence “China plus one”. |
What challenges does India face in its trade negotiations with the U.S.?
- Retaliatory Tariff Pressures: India has had to respond to U.S. tariff hikes on steel and aluminium with potential reciprocal measures, increasing trade tension. Eg: After the U.S. imposed duties under Section 232, India notified the WTO of its plan to raise tariffs on American products like almonds and apples.
- Pending Comprehensive Trade Agreement: Despite ongoing talks, both countries have struggled to finalize a broad-based trade deal due to divergent priorities and domestic pressures. Eg: Disagreements over market access for U.S. dairy products and medical devices have repeatedly stalled progress on a bilateral trade pact.
- Impact of U.S.-China Trade Developments: A thaw in U.S.-China trade ties may reduce Washington’s interest in deepening trade relations with India, limiting India’s leverage. Eg: If U.S. firms regain confidence in China post-agreement, India may lose the strategic advantage it gained during earlier trade disruptions.
Why must Indian States implement labour and land reforms to reduce dependence on Chinese imports?
What are the steps taken by the Indian government?
|
Way forward:
- Enhance Policy Frameworks: India should strengthen its infrastructure, labor, and land reforms to offer a more competitive and attractive environment for global companies, ensuring it can capitalize on the China+1 strategy.
- Focus on Technology and Skill Development: India must invest in advanced manufacturing technologies and skill development to match China’s scale and efficiency, thus making itself a more viable alternative for global supply chains.
Mains PYQ:
[UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?
Linkage: The US-China trade deal, as described in the article arose from a “tense global trade environment” involving “tariffs being ratcheted up by both sides”. This context of rising protectionism and trade tensions between major powers directly relates to the “phenomena of protectionism” mentioned in this PYQ and its potential impact on India’s macroeconomic stability.
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
