News / India feels the heat as China 'weaponises' for trade war bargaining power

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Amid the tariff threats by US president-elect Donald Trump, signs of a murkier geopolitical environment building across markets are emerging, with its ripple effects threatening trade diversification in Asia.

At particular risk is India’s heightened push to become a formidable alternative manufacturing hub, especially in the electronics and hi-tech sectors, which has already yielded some tangible investment gains with more promising indicators.

These efforts are now being severely tested by recent export controls imposed by China on a slew of critical products, part of what is believed to be Beijing’s broader strategy to marshal bargaining power for trade renegotiations if tariff conflicts come into play.

According to sources, these “weaponised” restrictions or curbs have created a crisis situation for India’s nascent digital-centric industries, including smartphone assembly, electronics and EV production, due to an acute shortage of key components and machinery usually sourced from China.

Reports also reveal, that with no reliable alternative sources,  these firms are struggling to keep production lines running and capacity expansion plans on schedule, and industry observers believe the export halt on India is a clear tactic, meant to slow down or disrupt the accelerating production shift from China.

iPhone assemblers for Apple, such as Foxconn and Pegatron, are reportedly bearing the brunt of the import supply woes. And the growing EV industry, which relies heavily on Chinese-made components like lithium-ion batteries and semiconductors, is grappling with production pressures.

With substantial equipment shipments held up at Chinese ports for months, Indian industry leaders have raised alarm bells in government circles, calling for swift intervention and mitigation measures, according to reports.

The crisis brings to the fore India’s continued over-dependence on Chinese suppliers for critical raw materials and semi-finished products, despite marked efforts in recent years to push domestic sourcing and diversification — an inherent shortcoming that exposes Indian industries to the vulnerabilities of external geopolitical factors.

Over the past few years, tensions over border issues, as well as India’s actions regarding Chinese investments and personnel (such as visa restrictions) have added to the strain. But the troubled bilateral ties saw some sort of a thaw late last year, following diplomatic talks.

A quick restoration of supply chains from China is critical for India, to not only tackle the specialised inventory crisis, but to keeping the flow resilient in the years ahead, as local investment interests gain measurable pace in the digital landscape. They include multiple semiconductor manufacturing projects, with Tata Group leading that race.

Additionally, US tech giant Apple is rapidly expanding its contracted iPhone production and exports out of India, as it aims to make a quarter of all its smartphone variants there this year.  According to the latest provisional data, the value of iPhone exports from India soared to a new record last year, some $12.8bn, year-on-year growth of 42%.  According to Indian government sources, this underscores the significance of an updated, more attractive production-linked incentive scheme, announced in late 2023, designed to encourage scaling-up operations and woo more investors looking to decouple from China.

To realise its geopolitical goals, however, New Delhi might need to do a complex balancing act: fixing the supply chain disruptions that vex its manufacturing ambitions in the near term; while creating alternative sourcing channels, outside China as well as through localised development options.