India has had limited success in benefiting from the ‘China Plus One strategy,’ while countries like Vietnam, Thailand, Cambodia, and Malaysia have gained more from factors such as lower labor costs, simplified tax laws, reduced tariffs, and active Free Trade Agreements, according to Niti Aayog report. It said that the US has imposed stricter export controls and higher tariffs on Chinese goods to curb China’s growth and technological advancements. This has resulted in the fragmentation of global supply chains, driving multinational corporations to explore alternatives to Chinese manufacturing.
According to a report by the government think tank Niti Aayog, India has experienced limited success in capitalizing on the ‘China Plus One’ strategy, adopted by multinational companies seeking to mitigate risks in their supply chains. The report ‘Trade Watch’, attributes this success to factors such as lower labor costs, simplified tax regulations, reduced tariffs, and proactive efforts to sign Free Trade Agreements (FTAs), all of which have helped these countries increase their export shares. Countries like Vietnam, Thailand, Cambodia, and Malaysia have reaped greater benefits, the report added.
NITI Aayog CEO BVR Subrahmanyam said, “There is a huge upside in improving trade in goods and services. There is 70 per cent of world trade where our share is less than 1 per cent. This is where the opportunity lies. We need to explore new markets and new products.”
In response to China’s growing technological and economic power, the US has imposed stricter export controls and higher tariffs on Chinese goods, contributing to the fragmentation of global supply chains. As a result, multinational corporations have begun seeking alternatives to Chinese manufacturing. India is viewed as a potential destination for companies relocating their manufacturing bases from China, offering the country an opportunity to boost its domestic manufacturing, particularly in high-tech sectors.
However, the report notes that India has seen limited success in attracting businesses under the China Plus One strategy. Despite significant potential in labor-intensive industries, India’s share in global trade has declined in recent years, mainly due to strong competition from China in key product categories.
The report stated that in Q1 FY25, Indian iron and steel exports experienced a massive decline (33%), primarily due to weak domestic demand and excess capacity in China, which led to an oversupply of steel in global markets.
The ‘Trade Watch’ report further noted that nations such as Vietnam, Thailand, Cambodia, and Malaysia have emerged as significant beneficiaries of the ‘China Plus One’ strategy. Factors like lower labor costs, simplified tax regulations, reduced tariffs, and active engagement in signing Free Trade Agreements (FTAs) have been crucial in increasing their export shares.
While India has established a strong presence in developed markets such as the US, UK, and Germany, there are still opportunities for expansion in emerging markets, the report added.
The US and China have entered a new phase of trade conflict, imposing reciprocal trade restrictions. Following the US announcement of export bans on computer chip-making equipment, software, and high-bandwidth memory chips, China retaliated by halting exports of key high-tech materials, including gallium, germanium, and antimony, to the US.
This renewed trade war is particularly noteworthy because “connecting economies” — countries seen as neutral and not aligned with either the US or China, such as India — have benefited from the geopolitical tensions between the two powers since Donald Trump’s first term. The US is India’s largest trading partner and that India-US relations extend beyond trade.
Arvind Virmani, a member of NITI Aayog, noted that a general 10 percent tariff on all imports by the US would not significantly impact India. However, he emphasized that a 60 percent tariff on China would present opportunities for India.
The report also highlights the potential impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM), which is expected to disproportionately affect African and Asian countries. The CBAM, set to take effect in January 2026, targets high-risk imports like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen, requiring the purchase of CBAM certificates that reflect the carbon emissions associated with these goods.
The report noted that India’s iron and steel industry, which makes up 23.5% of its EU exports, is particularly vulnerable under the CBAM. Indian companies may face tariffs ranging from 20% to 35%, resulting in higher costs, reduced competitiveness, and lower demand in the EU market. Compliance costs are also expected to rise due to the need for detailed emissions reporting.
The European Union is India’s second-largest trading partner, accounting for 17.4% (US$ 76 billion) of India’s total exports in 2023-24.
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