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Current Impact of United States-China Trade Relations

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 less exports and could mean that the Chinese economy is slowing down. The background trade war with the U.S. puts the manufacturing sector as well as 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 on 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 do 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 the 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 $250 billion. The trade deficit, which reached $323.32 billion in 2018, is the highest on record, dating too 2016. The U.S. also wants China to roll back much of the deficit. This will be to fund upgrades to parts of its technology sector, which includes 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 hub of global manufacturing 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 and 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 for 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 which 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 come to an agreement 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.

Backed by 40 Years of Expertise

We contribute our 40 years of design and manufacturing expertise spanning multiple diverse markets, and we look forward to discussing how we can deliver world-class products for OEMs across the globe. We provide high-volume electronic manufacturing, as well as offer product design, repair & rework, fast prototype, and co-creation services (ZAC) to our clients. We understand our home India market, familiar with its vast regulatory and selling environments. We foster growth opportunities within India through our strong technology incubation ecosystem. We also assist global OEMs seeking to enter the India market by leveraging the local supply chain and favorable operating environments for cost reductions.

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, with additional road and rail, connectivity linking to the rest of India and beyond, as well as infrastructure advantages with faster import and export clearances. We also have labor force availability, both technical and manual, to rapidly scale to client demand.

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Rene VarroCurrent Impact of United States-China Trade Relations

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