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India’s Strategic Pivot Amid US–China Trade Tensions: Manufacturing Surge and Defense Diplomacy

General Report April 29, 2025
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TABLE OF CONTENTS

  1. Summary
  2. Escalation of the US–China Trade War and Global Ripple Effects
  3. Global Supply Chain Realignment and China’s Globalization Drive
  4. India’s Emergence as an Alternative Manufacturing Hub
  5. Strengthening India’s Regional Partnerships Beyond China
  6. Conclusion

1. Summary

  • As the US–China trade hostilities escalate well into 2025, the ramifications extend far beyond the borders of these two economic giants, prompting a significant shift in global supply chains and economic alliances. China, embroiled in an increasingly heated tariff conflict with the United States, faces challenges on multiple fronts: domestic protests fueled by economic discontent, and the pressing need to enhance its globalization strategies amidst rising international isolation. Despite these headwinds, China appears resolute in its efforts to counter US pressures, asserting its economic resilience by diversifying trade relationships, particularly with Asia and Europe. Recent data indicates that China is working towards increasing its manufacturing footprint globally to mitigate the adverse effects of US tariffs, illustrating a complex dance around globalization and domestic stability.

  • In this environment, India emerges as a vibrant alternative manufacturing hub, leveraging the disruptions in China to attract multinational companies looking to diversify their operations. Apple’s announcement to pivot its iPhone assembly to India for the US market by the end of 2026 underscores this shift, marking a dramatic increase in Apple's manufacturing commitment to Indian soil. Furthermore, India is negotiating a significant acquisition of Boeing 737 MAX jets, showcasing its ambition to modernize its aviation capabilities while navigating the complexities of current global trade dynamics. Alongside these developments, India is amplifying its defense diplomacy, evidenced by the pending $700 million BrahMos missile sale to Vietnam, positioning itself strategically within Southeast Asia and fortifying regional security partnerships in light of rising geopolitical tensions.

  • The interplay between these trends not only reflects the ongoing reconfiguration of global economic strategies but also spotlights India's potential in shaping its role in the Asia-Pacific landscape. While robust opportunities for growth abound, particularly in manufacturing and defense, India must concurrently address infrastructure developments, regulatory enhancements, and foster stability in emerging markets to fulfill its aspirations as a central player in the global economy.

2. Escalation of the US–China Trade War and Global Ripple Effects

  • 2-1. Recent tariff hikes and retaliatory measures

  • As of April 2025, the US–China trade conflict has escalated considerably, with the implementation of substantial new tariffs by both countries. The Trump administration has continued its aggressive tariff strategy, imposing tariffs as high as 145% on various Chinese goods since his presidency began. This action was initially aimed at reshoring manufacturing to the United States and countering what was seen as unfair trade practices by China. In retaliation, China has introduced its own set of tariffs, creating a reciprocal cycle of economic hostility that threatens to disrupt not only bilateral trade but also global supply chains.

  • The recent actions have sparked fears of a potential global recession, as these tariffs heighten tensions and uncertainty in international markets. Reports indicate that the tariffs imposed are causing hiccups in supply chains, particularly in the electronics sector, creating challenges for companies reliant on a smooth flow of goods between the US and China. Moreover, both nations find themselves under increasing pressure from domestic and international stakeholders to de-escalate the situation, pointing toward a critical juncture in global trade relations.

  • 2-2. China’s political and economic counter-strategies

  • In light of the ongoing trade conflict, China has adopted several political and economic counter-strategies aimed at mitigating the impacts of US tariffs while fortifying its economic position. Chinese officials have conveyed a clear message of resilience, asserting their commitment to 'fight to the end' against US pressures. State-owned media and prominent figures have emphasized the necessity of enhancing internal markets and diversifying exports beyond reliance on the US market, as illustrated by substantial efforts to bolster trade relationships with other regions, particularly Asia and Europe.

  • Additionally, economic advisers suggest that the expectation among US policymakers that China's economy would collapse under economic pressure was miscalculated. Despite persistent domestic challenges, such as weak consumer spending and property market instability, Chinese policymakers are focusing on maintaining economic stability and fostering growth through targeted stimulus measures and investment in technologies such as AI and renewable energy. This strategic pivot not only aims to counter the stagnant effects of US tariffs but also seeks to ensure that China remains an indispensable player in the global economy.

  • The Chinese Commerce Ministry has acknowledged the 'high-intensity' period of trade frictions, advocating for confidence and strategic focus during negotiations—a stance that reflects an understanding of the broader geopolitical implications of the ongoing trade war.

  • 2-3. Impact on global markets and consumer cycles

  • The intensification of the US–China trade war is significantly disrupting global markets and consumer cycles. As both countries impose retaliatory tariffs, the ripple effects are felt across various industries, leading to increased costs for businesses and consumers alike. Recent analyses have pointed to disruptions particularly within the electronics supply chain, which is experiencing both delays and increased tariff-related costs. Such developments heighten the risk of inflation and are likely to hamper consumer confidence, thereby affecting overall economic growth.

  • Moreover, the uncertainties surrounding the trade environment have led to a more cautious approach from businesses regarding investment and expansion plans. This sense of trepidation is compounded by the potential for a protracted standoff, which could cement a decline in trade volumes between the two largest economies in the world. The apprehension is also reflected in stock market fluctuations, with many investors closely monitoring policy developments and potential economic indicators emerging from both Washington and Beijing.

  • In summary, while the immediate economic indicators suggest resilience in consumer cycles—as evidenced by observational trends in specific market sectors—the overarching sentiment remains fraught with the potential for downturns, thereby complicating the ever-evolving global economic landscape.

3. Global Supply Chain Realignment and China’s Globalization Drive

  • 3-1. China’s efforts to bolster export growth and investment

  • In response to the ongoing challenges posed by the US–China trade tensions, China has intensified its efforts to stimulate export growth and attract foreign investments. This strategy is underpinned by a commitment to enhance manufacturing capabilities and expand into emerging markets. As reported in an article from China Daily on April 18, 2025, Chinese manufacturers are being encouraged to diversify their production capacities globally, particularly in regions like South America and Eastern Europe, to mitigate the impact of US tariff policies. Experts emphasize the importance of establishing research and development centers and strengthening local supply chains in these regions to cater to local market demands while navigating the complexities introduced by changing trade dynamics. Such strategies are not only essential for maintaining competitiveness but are also aimed at ensuring Chinese firms can continue to thrive amidst an increasingly protectionist global environment.

  • 3-2. Manufacturing competitiveness amid trade friction

  • The Chinese manufacturing sector is presently facing significant pressures due to rising trade protectionism and tariffs imposed by the United States. As detailed in analyses by industry experts, there is a pressing need for Chinese enterprises to enhance their technological capabilities and operational efficiencies. A report highlighted the shifting landscape of global supply chains, where nations like Mexico and Brazil are anticipated to gain prominence as new manufacturing hubs under the current pressures. Given these circumstances, China's ability to innovate and leverage its vast consumer market is crucial. For instance, companies are investing heavily in high-tech manufacturing and automation to bolster their competitiveness. This includes initiatives to reduce dependency on single markets and enhance the flexibility of production in response to fluctuating international demand.

  • 3-3. Domestic protests and confidence trends in China

  • While China is actively pushing for globalization and expansion of its economic reach, internal factors such as domestic protests and declining confidence among manufacturers are complicating this landscape. Public discontent, driven by economic strains and perceived government mismanagement in addressing local grievances, is palpable and poses a risk to social stability. Recent reports indicate that while the Chinese government is doubling down on globalization, there is an urgent need to address local socio-economic issues to maintain a robust industrial base. Economists suggest that building a resilient social safety net and improving living standards could bolster consumer confidence and simultaneously unleash new domestic demand, thereby aligning with China's broader economic goals. The intertwining of external pressures and internal challenges creates a complex scenario for policy makers aiming to navigate towards a more globally integrated yet locally stable economy.

4. India’s Emergence as an Alternative Manufacturing Hub

  • 4-1. Apple’s plan to assemble all US-bound iPhones in India by 2026

  • In a strategic shift aimed at mitigating tariff impacts from the ongoing US–China trade tensions, Apple has announced plans to assemble all iPhones designated for the US market in India by the end of 2026. Currently, a significant portion of Apple’s iPhone production is based in China, where geopolitical concerns have rendered such products increasingly problematic assets due to heightened tariffs. The long-term strategy reflects Apple’s ongoing reliance on India as a production base, a trend that began in 2017 when the company started assembling lower-cost models in the country.

  • This projected transition represents a considerable escalation in Apple's manufacturing scale in India, potentially doubling output to meet both US demand—where iPhones command a substantial market share—and India's burgeoning domestic market. Last year, Apple produced approximately 40 to 43 million iPhones in India, exporting most of these units, while just 12 to 13 million were sold within the local market. To match US demand and accommodate local consumption, Apple's Indian production will need to ramp up significantly.

  • Apple’s reliance on local partners, such as Tata Electronics, has been crucial to this operational expansion. Tata has been significantly involved in the process, operating an assembly plant in Tamil Nadu and acquiring Wistron’s facility in Karnataka in 2023. In early 2025, Tata secured a majority stake in Pegatron’s Indian operation, allowing for a greater consolidation of iPhone production under Indian oversight. Despite these advancements, challenges remain; past production issues have highlighted inconsistencies in quality and yield rates, particularly in component manufacturing. Furthermore, India's current manufacturing capabilities still require the skills and expertise provided by Chinese engineers for optimal assembly operations.

  • 4-2. Air India’s early talks to acquire Boeing 737 MAX jets rejected by China

  • Amidst the shifting landscape of international trade and aviation, Air India is negotiating to acquire around 10 Boeing 737 MAX aircraft originally slated for Chinese customers. Ongoing trade disputes between the United States and China have led to the rejection of these planes by Chinese buyers due to substantial tariffs imposed on aircraft exports. The ongoing discussions are still in preliminary stages, but if successfully executed, these planes could enhance Air India Express's fleet capabilities, potentially by the end of 2025.

  • Boeing's CEO Kelly Ortberg has indicated that multiple Chinese customers are increasingly unwilling to accept deliveries of aircraft due to the escalating trade tensions. Consequently, Boeing is exploring alternative markets, making Air India a prime candidate to absorb these jets, which would support Air India’s strategy to grow its aviation network amid increasing domestic competition. The acquisition of ‘white tail’ aircraft—those built for one airline but available for acquisition by another—offers a cost-effective solution. Nevertheless, the final configuration might require adjustments to meet Air India’s operational standards and passenger needs.

  • This opportunity for Air India could alleviate some pressure associated with current fleet delays and supply chain disruptions affecting both Boeing and Airbus. Securing these aircraft would not only bolster Air India’s operational capabilities but also positions the airline to respond effectively in an increasingly competitive air travel market.

  • 4-3. Opportunities and infrastructure challenges for India

  • India’s ambition to become a global manufacturing hub comes with a dual set of opportunities and challenges. The ongoing trade tensions between the US and China have rendered India an attractive alternative for multinational companies seeking to diversify their supply chains and reduce risks associated with over-dependence on Chinese manufacturing. This external pressure is likely to accelerate investment in India's infrastructure and industrial capabilities.

  • However, significant challenges persist. Upgrading manufacturing infrastructure to support large-scale production demands skilled labor and advanced logistics systems, both of which are currently under development. The government and private sector stakeholders need to effectively collaborate in enhancing India's physical and digital infrastructure, from transportation networks to technology parks, to facilitate smoother integration into global supply chains.

  • Challenges also extend to regulatory frameworks and policy consistency, which are critical in determining the speed and success of attracting foreign investment. India must ensure a conducive business environment that can efficiently navigate the complexities of international trade agreements and provide necessary support and incentives to encourage manufacturing investments.

5. Strengthening India’s Regional Partnerships Beyond China

  • 5-1. Pending $700 million BrahMos missile sale to Vietnam

  • India is on the verge of finalizing a substantial defense agreement with Vietnam, involving the sale of the BrahMos supersonic cruise missile. This deal, valued at approximately $700 million, signifies a robust enhancement of Vietnam’s maritime defensive capabilities amidst rising tensions in the South China Sea. Negotiations, which are in advanced stages, suggest that the agreement could be finalized in the coming months, thereby marking yet another significant step for India in its defense export strategy. The BrahMos missile, known for its precision strike capabilities, is expected to bolster Vietnam’s ability to secure its maritime boundaries and counter any potential threats posed by Chinese naval forces in the region.

  • 5-2. Prospects for Indonesia and Southeast Asian defense ties

  • In addition to Vietnam, Indonesia is reportedly engaged in preliminary discussions regarding a potential acquisition of the BrahMos missile system. The growing interest from Southeast Asian nations in such advanced military technology highlights the urgency of regional defense amid escalating territorial disputes in the South China Sea and beyond. India's capability to offer advanced missile technology, previously demonstrated through successful international sales like the one to the Philippines, places it in a strategically advantageous position. This trajectory enhances not only bilateral defense relations but also fortifies multilateral security arrangements in the Indo-Pacific, a region increasingly influenced by China's assertive posture.

  • 5-3. Geopolitical implications relative to China’s influence

  • The increasing demand for the BrahMos missile among Southeast Asian countries represents a significant countermeasure to China's growing military assertiveness in the region. With Vietnam anticipated to become the second nation after the Philippines to incorporate this advanced system into its naval arsenal, there are broader implications for the balance of power in the Indo-Pacific. The deal not only elevates Vietnam's defense capabilities but also reflects India’s commitment to expanding its influence as a key defense partner in a region that is concurrently navigating complex dynamics stemming from China's territorial claims. The ramifications of these partnerships extend beyond immediate military concerns, as they underscore a strategic recalibration in regional alliances that could deter China's maritime ambitions.

Conclusion

  • As the US–China trade tensions continue to evolve, the emergent patterns in global economics underscore a transformative period in which both challenges and opportunities shape national strategies. China's efforts to counteract the impact of US tariffs begin to reveal structural vulnerabilities, especially given the rising domestic unrest that complicates its assertive global posture. Concurrently, India's strategic recalibration towards high-value manufacturing and defense exports holds significant promise, establishing it as a potential linchpin in the broader geopolitical narrative of Asia. Policymakers within India must prioritize vital areas such as infrastructure enhancement, regulatory improvements, and the strengthening of international partnerships to effectively capitalize on these beneficial shifts.

  • Looking forward, India’s success will hinge on its ability to navigate the intricate landscape of international relations, particularly in balancing relationships with major global powers while fostering robust regional security collaborations. The outcomes of these maneuvers will not only shape India's economic destiny but also have profound implications for the balance of power in the Indo-Pacific. As these dynamics unfold, stakeholders in India must remain vigilant and responsive to the fluctuating global environment, positioning the nation to seize the unprecedented opportunities that lie ahead. The unfolding chapters of this narrative will truly define India's role in the global landscape, reinforcing its stature as a formidable player in the face of ongoing geopolitical complexities.

Glossary

  • US–China trade war: An ongoing economic conflict between the United States and China characterized by the imposition of tariffs and trade barriers by both countries. As of 2025, this conflict has escalated with new tariffs causing disruptions in global supply chains and increasing economic tensions.
  • Tariffs: Taxes imposed on imported goods, intended to protect domestic industries from foreign competition. The current phase of the US–China trade war features tariffs as high as 145% on Chinese products, severely impacting international trade dynamics.
  • Supply chain: A network between a company and its suppliers to produce and distribute a specific product. The ongoing trade hostilities have significantly affected supply chains, particularly in industries reliant on Chinese manufacturing, leading to increased costs and delays.
  • Manufacturing hub: A geographic region where manufacturing is concentrated and where production capabilities are strong. In 2025, India is positioning itself as a key alternative manufacturing hub in response to the US–China trade war, attracting major companies like Apple.
  • BrahMos: A supersonic cruise missile developed jointly by India and Russia, known for its precision strike capabilities. India is finalizing a $700 million deal to sell BrahMos missiles to Vietnam, enhancing regional defense amid rising tensions in Southeast Asia.
  • Defense diplomacy: The use of military partnerships and defense agreements to strengthen international relations and promote security objectives. India's recent defense initiatives include the BrahMos missile deal with Vietnam, indicating a strategic shift in its defense posture.
  • Economic diplomacy: The use of economic tools to achieve foreign policy goals. As India navigates the changing trade landscape, its economic diplomacy focuses on enhancing manufacturing capabilities and securing foreign investments, particularly from multinational companies looking to shift operations from China.
  • Apple iPhone assembly: The production process involving the manufacturing of iPhones, with a significant shift expected as Apple plans to move its US-bound iPhone assembly to India by the end of 2026. This shift is in response to ongoing tariffs and geopolitical tensions.
  • Air India: India's flagship airline, currently in negotiations to acquire Boeing 737 MAX aircraft originally ordered by Chinese customers. This acquisition is aimed at enhancing Air India's fleet capabilities amidst the turbulence caused by US–China trade tensions.
  • Globalization: The process of increased interconnectedness and interdependence among countries, primarily in economic terms. As of 2025, China's attempts to promote globalization amid trade tensions highlight the balancing act between expanding international trade and addressing domestic challenges.
  • Southeast Asia: A region in Asia that is experiencing heightened interest from India in defense and economic partnerships, particularly as India seeks to counter China’s influence through military agreements like the BrahMos missile sale to Vietnam.

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