Current Impact of United States-China Trade Relations
Current Impact of United States-China Trade Relations

May 30, 2019

Since the beginning of 2019, China’s manufacturing sector has seen a net decrease, which began earlier last year. This is due in part to fewer exports and could mean that the Chinese economy is slowing down. The background trade war with the U.S. puts the manufacturing sector and other sectors at greater risk of decline. The Purchasing Managers’ Index (PMI), a respected economic indicator, fell to a 9.5-year low of 50.6 in May from April. Many people worry that the industry will continue to decline as the U.S. and China escalate trade tensions. Increased tensions and debt uncertainty have slowed economic growth, but China’s choice to let up economic regulations has ceased to be a contributing factor. [1]

U.S.-China Trade War Possibility

It’s not yet clear how the current trade tensions between China and the U.S. will affect China’s economic growth. But many expect that there could be billions of dollars in losses to the Chinese economy. Factory activity declined to a 3-year low in February before experiencing only slight upticks in March and April that reflected a weak start of the second quarter. Export orders have declined in a real and significant way. The Chinese government may decide to change its policies for fear of a full-blown trade war with the U.S. If the two nations end up in a trade war, many sectors will feel the brunt of the impact. These include the technology and manufacturing sectors. [1]

Currently, the Chinese government is being cautious about U.S. top trade demands. If this continues, talks could break down between the two nations. The U.S. has announced trade tariffs against China amounting to $250B. The trade deficit, which reached $323.32B in 2018, is the highest on record, dating to 2016. The U.S. also wants China to roll back much of the deficit. This will fund upgrades to parts of its technology sector, including artificial intelligence, electric cars, and electric commercial aircraft. However, China is hesitant to relent on either of these points. [1,2,3

Officials from both countries are hopeful that a trade deal will take shape in time, and few people remain optimistic that such an agreement will be finished before the U.S. and China meet in their upcoming trade summit. It is more likely that extended negotiations will become necessary. China is keen on keeping on track with long-term plans for expanding exports. These include exports in the automotive and finance industries. China is also unhappy with the prospect of slowing investment in new technologies. These issues have created a diplomatic gridlock between the two countries.

India’s Global Manufacturing Growth

Despite the uncertainty of U.S.-China trade relations, India’s role as a global manufacturing hub continues to grow. Its manufacturing sector gives benefits in design, exports, and intellectual property for OEMs. This combines with India’s increasing economic and political stability. It has added further incentives with its Goods and Services Tax (GST) and its Make in India program. These policies will grow India’s share of the international electronics manufacturing sector. If these plans are successful, India is likely to emerge as the locale of choice for OEMs. GST is a recent revamp of India’s commercial tax system. It created a uniform tax code for all Indian businesses to make India a more attractive source for manufacturing and exporting electronics. The GST is transparent, replacing the previous confused and difficult regional tax system.

The previous system meant each OEM would have to deal with many levels of the tax code. This reform drastically decreased the tax burden on OEMs, who once had to pay separate taxes to distinct governments. The Make in India Program began in 2014. The program is designed to improve the country’s reputation as a top-tier manufacturing hub. New incentives were added in 2016. These policy changes promote investment and innovation. It also protects intellectual property rights. These reforms aim to make India an efficient, globally renowned manufacturing center. The program includes deregulation and license removal measures to simplify regulations. This will increase the transparency and efficiency of foreign companies considering an investment.

India’s government also announced government rebates and grants for small-to-medium enterprises (SMEs). India will also reward companies that achieve its stringent environmental standards. The future of American and Chinese economic relations is up in the air, along with the fate of China’s manufacturing sector. But, India is moving forward as a global hub of industry. It’s unclear whether the U.S. and China will agree any time soon, if at all. While this, along with other factors, has made many OEMs hesitant to invest in China, it has brought India’s attractiveness to the fore. All signs point to India becoming the next center for the manufacturing sector. OEMs considering potential investments would be wise to take note of.

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Our flagship Chennai location opened in 2006 and lies within a Special Economic Zone (SEZ) for electronics manufacturing, offering economic incentives for imports and exports. This primary facility is within 90 minutes of the Chennai seaport and 20 minutes to the international airport. Additional road and rail connectivity links to the rest of India and beyond and infrastructure advantages with faster import and export clearances. We also have labor force flexibility, both technical and manual, to scale to demand rapidly.

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