That move towards “decoupling” started during Donald Trump’s presidency when punitive tariffs were slapped on China. Most of these continued through the reign of US President Joe Biden, whose administration has worked even harder to rework global supply chains, especially in the aftermath of the COVID-19 pandemic.

As the battle for who will sit in the White House escalates, a tougher stance can well be expected to counter China’s growing heft in global trade, and especially high-tech trade, with politicians from both the Republican and Democratic parties sallying out against the dragon nation.

With pollsters predicting a victory for Donald Trump in the US presidential elections, the tectonic shifts that global supply chains have seen in the past five to six years may accentuate as higher duties may well be slapped on Beijing’s exports, leading to potential gains for China’s rivals.

However, once again the fear is that India may not necessarily gain as much as is hyped, because several others are better placed to make the most of the opportunity that may arise.

The Disruption So Far

Before one can understand why this has happened despite all the hype over India replacing China as the factory of the world, a peep into how the story has played out is in order.

Over the last five years, as global supply chains reworked themselves, China’s goods exports to the US fell by about a fifth, or 20.67 per cent, to US$427.23 billion in 2023. This happened even as Mexico, the USA’s neighbour to the south, became the largest exporter of goods to America, increasing its sales to the “biggest buying nation in the world” from $342.68 billion in 2018 to US$475.60 billion in 2023. That’s a massive jump of US$132 billion, or 40 per cent, in just five years.

India’s goods exports to the US did also go up 54 per cent during the same period to US$83.77 billion. But in volume terms, India’s merchandise exports pale in comparison to Mexico. What is noteworthy is how Vietnam stepped into China’s shoes.

Vietnam’s merchandise exports to the US during the same period rose 133 per cent to hit US$114.44 billion in 2023, making it the biggest gainer in trade (in percentage terms) with the US.

A recent reportfrom the research arm of Investment Bank Nomura said: “Vietnam stands out as a key beneficiary, as supply chains have relocated from China to Vietnam across electronics, textiles and toys segments over the last 5 to 7 years”.

Even the tiny island of Taiwan, which is under constant threat of being overrun by China, increased its exports of goods to the US to US$87.75 billion in 2023, up 92 per cent from five years ago.

The ‘water buffalo nation’ managed to give investors, ranging from USA’s IBM and Microsoft to Europe’s Unilever and Japan’s Honda, value for money as they set up global export factories in the East Asian nation over the last decade.

“Vietnam has been the star performer and has gained the most from disruptions in the global supply chain ever since the US has tried to skew the supply pipeline away from China. The first wave of investors who moved out of China identified Vietnam as their best fit,” said Biswajit Dhar, former WTO Chair at the Indian Institute of Foreign Trade.

Vietnam’s Efficiencies Helped

“Their (Vietnam) turn-around time at ports is excellent, their productivity is far higher than that of most competitors,” said Dharmesh Rajdev, an investment consultant.

According to data analytics firm Statista, ship turnaround time in Vietnam was 0.83 days compared to India’s 0.93 days as of 2022. Similarly, productivity per person is again far higher for Vietnam at US $10 against India’s US$ 8 according to statistics compiled by International Labour Organisation.

The supply chain reallocation from China spurred greater foreign direct investment into ASEAN nations led by Vietnam. Both Rajdev and Dhar expect this trend to continue.

“We are attracting higher FDI and will continue to do so. But most of it is attracted by India’s size of the market. Not to turn India into a factory of the world, we are just not that attractive,” said Dhar who has been part of previous Indian delegations to WTO negotiations.

Added S K Sarkar, former president of Indo-American Chamber of Commerce, "India's shortage of skilled labour is a drawback. Labour productivity continues to be low. Import duties on inputs and intermediaries remain high. On the other hand besides being better placed on these fronts, there is also less red tape in Vietnam."

India’s Time Will Come, But China Can’t Be Written Off

However, many others including analysts with Nomura believe that India too could stand to benefit in this decade.

Higher government spending on infrastructure (by Indian and other governments hoping to attract investment flowing out of China), “could set off a virtuous spiral by boosting supply capacity, competitiveness and productivity. India and ASEAN are Asia’s new flock of high-flying geese, and the experience from North Asia indicates that, once foreign trade and FDI reach a critical mass, stronger portfolio inflows will follow,” the Nomura note written by Sonal Verma and Si Yong Toh claimed.

They expect the deterioration in US-China relations to accentuate during the second Trump presidency (if that happens) and this the research firm expects will help India and ASEAN nations.

The Republicans led by Trump have already proposed imposing tariffs of more than 60 per cent on imported goods from China, phasing out imports of essential goods from the country and enacting restrictions on Chinese ownership of vital US infrastructure and strategic national assets.

“If enacted, these policies could trigger a tit-for-tat retaliation from China. They would further weigh on China’s exports to the US, which account for about 15 per cent of China’s total goods exports by destination,” Nomura forecasts.

However, the ‘China plus One’ policy that the US has been pushing is not so easy to implement. China has an abundant technically skilled labour supply, excellent infrastructure of a global scale and its ease of doing business ranking is far better than its Asian or Latin American rivals.

In Rajdev’s words, “China has unlimited trained manpower, faster turn-around for ships than most countries (0.73 days according to Statistica) and higher labour productivity (US $15). Vietnam is just about a tenth of its size and India is still struggling with infrastructure deficits. Most investors and buyers other than the US and even the US to a large extent will remain invested in Beijing.”