India's China Plus One Strategy in Jeopardy as U.S. Tariffs Shake Economic Alliance

President Trump's 50 percent tariffs on Indian goods have dealt a severe blow to India's China Plus One strategy, undercutting investments made by American companies to hedge their dependency on China. Just over a week since the tariffs took full effect, officials and business leaders in New Delhi and their American partners are trying to make sense of the altered landscape. Prime Minister Narendra Modi's visit to China to meet with Xi Jinping, China's top leader, has sparked concerns about India's growing reliance on China and its potential impact on manufacturing growth.

Key Takeaways:

• The China Plus One strategy, which aims to present India as a viable alternative to Chinese factories, has been left in tatters by Trump's tariffs, rendering India less enticing to American importers.
• Indian companies, including Shree-Krishna, a family-owned company that makes housewares for the American market, are struggling to find new markets for their goods, with some considering the possibility of letting employees go.
• India's government has announced programs to help businesses financially, but experts say they will not be enough to alleviate the economic shock caused by Trump's tariffs.
• India's foreign ministry has announced plans to expand bilateral trade and investment ties with China, with both countries discussing the possibility of resuming direct flights and opening trading posts along the border.
• China's central bank has quietly acquired 1 percent of India's biggest private bank, leading to India's response by blocking many forms of investment from China.
• China has restricted India's access to rare earths and dozens of other technologies that India needs to keep its factories running, as part of its economic weaponization of India.

Statistics:

• $129 billion: India's trade in goods with the United States, which is expected to unravel due to Trump's tariffs.
• 1 percent: The amount of voting shares held by China's central bank in India's biggest private bank, which was acquired quietly during the Covid-19 pandemic.
• 134 industrial categories: The number of industrial categories controlled by China, creating Indian vulnerabilities.
• 40 percent: The proportion of housewares produced by Shree-Krishna that are destined for the American market.
• 24: The number of soldiers killed in hand-to-hand combat between Indian and Chinese forces in June 2020.
• 7 years: The time since Prime Minister Narendra Modi last visited China.

Sources:

• "The New York Times", August 2022
• "Indian Express", August 2022
• "The Brookings Institution", August 2022