India is already seeing some success luring supply chain investments away from China, and is considering teaming up with Japan, Australia and others to counter Chinese dominance as trade and geopolitical tensions escalate across the region, Bloomberg explains.
Bloomberg calls the three interested countries export powerhouses and says they are discussing a “supply resilience initiative.” The talks are now at a working level but Japan would like to elevate them.
Even without the other two nations, India's latest set of incentives to entice businesses away from China “seems to be working,” Bloomberg says, with companies from Samsung to Apple's assembly partners showing interest.
Prime Minister Narendra Modi's government in March announced incentives that make electronics manufacturers eligible for a payment of 4%-6% of their incremental sales over the next five years. About two dozen companies pledged $1.5 billion in investments to set up mobile-phone factories in the country.
Besides Samsung, those that have shown interest include Wistron, Pegatron and Foxconn. India has also extended similar incentives to pharmaceutical businesses. The group “plans to cover more sectors, which may include automobiles, textiles and food processing,” Bloomberg says.
Numerous countries in Asia and elsewhere have been actively looking to diversify supply chains amid the U.S.-China trade tensions and the coronavirus outbreak – conditions that are making it cheaper for businesses to open shop. Vietnam remains the most favored investment destination, followed by Cambodia, Myanmar, Bangladesh and Thailand, according to a survey by Standard Chartered.
The incentives would help bring an additional investment of $55 billion over five years, adding 0.5% to India's economic output, according to analysts led by Neelkanth Mishra at Credit Suisse.
The latest output-linked incentive plan is a “win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to clients. He sees gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.
Meanwhile, the campaign of U.S. President Trump, who is vying for re-election in November, just released a second-term agenda that includes a goal of bringing back 1 million factory jobs from China and offers “Made in America” tax credits.
The Congressional Research Service (CRS) reported last week that since the COVID-19 outbreak was first diagnosed, it has spread to over 200 countries and all U.S. states. In addition, CRS says the pandemic is negatively affecting global economic growth “beyond anything experienced in nearly a century.”
Estimates so far indicate the virus could trim global economic growth by 3.0% to 6.0% in 2020, with a partial recovery in 2021, “assuming there is not a second wave of infections.”
Still, the economic fallout from the pandemic raises the risks of a global economic recession with levels of unemployment not experienced since the Great Depression of the 1930s. The report emphasizes the “human costs in terms of lives lost” that will permanently affect global economic growth in addition to the cost of rising levels of poverty, lives upended, careers derailed, and increased social unrest.
Global trade could also fall by 13% to 32%, exacting an especially heavy economic toll on trade-dependent developing and emerging economies. CRS says the full impact of these trends will not be known until the effects of the pandemic peak. The report provided details and an overview of the global economic efforts and costs to date and response by governments and international institutions to address the pandemic impacts.
Policymakers and financial and commodity market participants generally have been hopeful of a global economic recovery starting in the third quarter of 2020. Some forecasts, however, raise the prospects that the pandemic could negatively affect global economic growth more extensively and for a longer period of time with a slow, drawn-out recovery.
Without a quick resolution of the health crisis, the economic crisis may persist longer than most forecasters have assumed, CRS says – and it may require policymakers to weigh the most effective mix of additional fiscal and monetary policies that may be required without the “benefit of a relevant precedent to follow.” Additional measures “may have to balance the competing requirements of households, firms, and state and local governments. CRS says.
Various U.S. states reversed course in late June to impose or reimpose social distancing guidelines and close down businesses that had begun opening as a result of a rise in new confirmed cases of COVID-19, raising the prospect of a delayed recovery, CRS said.
So, we will see. Certainly, the impacts of the pandemic are continuing to be both enormous and difficult to evaluate – efforts producers should watch closely as they are debated and implemented, Washington Insider believes.
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