April 30, 2025 • 25 mins
On this episode of Trumponomics, we discuss why India stands to gain from the US trade war with China and the rest of the world. Host Stephanie Flanders speaks with Bloomberg senior editor Chris Anstey and reporter Shruti Srivastava, as well as Bloomberg Economics senior India economist Abhishek Gupta. They look at how India has been able to pull ahead of rivals as the US roils the world, and specifically whether the Republican in the White House may unintentionally be boosting the South Asian nation’s long-term ambitions to replace China as the “factory of the world.”
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. I would guess that
India would be one of the first trade deals we
would sign, So watch this space.
Speaker 2 (00:22):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg.
Welcome to Trumpnomics, the podcast that looks at the economic
world of Donald Trump, how he's already shaped the global economy,
and what on earth is going to happen next. This week,
we're leaning into the global impact of trump Andomics by
asking is India the winner in Trump's trade war with China.
(00:44):
According to the White House, at least seventy countries are
queuing up to do massive trade deals with the US,
anything to avoid those reciprocal tariffs that President Trump has
put on hold for a few months. Our reporting suggests
that a much smaller number of actual negotiations are happening,
and indeed, President Trump and China's President Shijingping can't even
(01:05):
agree on whether they've talked to each other at all.
But as Treasury Secretary Scott Besnant hinted in that interview
earlier this week that you heard at the start of
the show, India's government has been negotiating and may even
be close to a deal. Even if that turns out
to be optimistic, we can already say India has been
one of the few countries seems to be benefiting from
(01:27):
the global economic uncertainty unleashed by President Trump in the
last few months. We reported last week that Apple is
seeking to import most of the phones it sells in
the US from India rather than China by the end
of this year. That's double what it's currently producing in India.
And the Indian stock market's one of the very few
to be up since tariffs were announced on so called
(01:48):
Liberation Day. So with markets ditterary everywhere, investors are even
talking about India as a safe haven. So today we're
going to get into how India's Prime Minister, India and
Modi is himself learning the art of the deal, and
also consider how India's long term ambition to replace China
as the factory of the world might have got a
(02:10):
massive leg up thanks to Donald Trump. Shrudi Shravastava is
our reporter in New Delhi and she's been breaking all
the news on that possible US India trade deal. We're
going to talk to her in a minute. We also
have Abhishek Gupta, senior India economists for Bloomberg Economics based
in Mumbai. Previously worked as an economist at Merrill Lynch
(02:31):
and a research analyst at the National Institute of Public
Finance and Policy, India's premiere macro finance think tank. And
Chris Anstey, Senior editor in Boston who writes our daily
economics newsletter and is always across everything in my experience,
Chris Abishek Shrudi, thanks very much for coming on Trumpnomics.
Speaker 3 (02:49):
It's a pleasure.
Speaker 1 (02:50):
Happy to be here. Stephanie Shrudy.
Speaker 2 (02:57):
I do want to start the conversation with you because
you had a big scoop last week about what was
potentially in this US India trade deal, and we should say,
we're having this conversation on Tuesday afternoon or evening India time,
so just get us up to speed. What do we
think is going to be in it? And how surprising
is it, you know, how far it's gone in just
a few weeks.
Speaker 1 (03:17):
Things have indeed been moving very fast when it comes
to negotiations which are happening on trade front, and it
appears that India is in front of the line when
it comes to securing a trade deal with the US.
This has been said by several officials in Washington. Officials
in New Darry are also optimistic of making use of
this ninety day pause which Strup administration has given. And
(03:40):
they have been moving fast to you know, they have
been holding these virtual negotiations. There was a team last
week of Indian trade officials in Washington to advance the
negotiations which have been taking place. The Indian government issued
a statement saying that they're looking to conclude a deal
by fall of this year. Now the signals that there
might be a possibility of six curing some sort of
(04:02):
interim framework even before the fault deadline arrives. And I
would say that India has played its cards really well
so far. It has refrained from retaliation. Even before Trump
came to the White House, the government made sure that
it starts reducing duties on some of the key asks
of Trump. In its federal budget, India overhauled its tariff policy.
(04:22):
India has been labeled as a tariffs king by the US,
but the US president several times, so India tried to
ensure that it shakes off that label. It brought down
tariffs on some eight thousand, five hundred items and that
included some of the key ask of US president, like
bourbon whiskey or tariffs on Harley Davidson bikes, and that
I think has worked in India's favor. It has been appreciated,
(04:45):
so to say in the Trump administration that India's working
in good faith. And as you rightly said, this is
movie's art of making reed. So the two sides have
finalized what we call terms of reference, and this happened
during US Vice President J. D. Vance's last week. He
was an afford trip to India. He met Prime Minister Moody.
He also showed a bit of softer diplomacy, which he's
(05:08):
not very well known for.
Speaker 2 (05:09):
He had his photos with his family in front of
Taj Mahal or the mandatory photose you have to have.
Speaker 1 (05:14):
Absolutely absolutely, so all those things basically they showcase that
there is some sort of understanding between India and US
and they expect to take forward this collaboration that they
are trying to show. The two sides have agreed to
discuss on nineteen chapters, nineteen categories what we have been
tool and we reported it last week as well, that
they are looking to discuss greater market access for Indian
(05:37):
and American goods, and America has specifically asked for greater
market access for agriculture goods. They will also be talks
on e commerce. Some of these American companies like Amazon,
they have been calling for level playing feet for a
long time. Now they are going to discuss about a
rule that India has that you have to store data
on local servers.
Speaker 2 (05:57):
India is a country that's kind of been famous for
having a lot of both visible and invisible trade barriers.
Was there any signal before this that Prime Minister Moody
was minded to make all of these changes and to
open up or do we really think that he has
been spurred by Donald Trump's tariff war? That's for you.
Speaker 1 (06:18):
Shruti, one of the trade experts we spoke to, said
this was the first significant overhaul that happened in decades
in India. So of course India has maintained high tariffs
for a long time. It says that it has done
so to protect its domestic industries. For instance, auto auto
has had one fifty percent duty and now they have
been slashed to seventy percent in the federal budget that
(06:40):
happened in February. So clearly India preempted the tariff war,
and it took measures to ensure that it has a
first mover advantage, and I think that clearly worked.
Speaker 2 (06:50):
There's been discussion of, for example, the EU India Tariff
trade Deal, the UK India Trade Deal for many years
and they've never quite got off the ground. I mean,
I remember from the sad days I've spent at wto
ministerials and when it came to anything to do with agriculture,
India was the absolute hold out in terms of wanting
(07:11):
to get hold on to the barriers against competition in
agriculture in that kind of global context. So do we
think that there will be real progress, that India will
do things that it has been unwilling to do with
any in any other forum over the last few decades.
Speaker 1 (07:25):
Absolutely, Stephanie. That is what we are seeing is unfolding
right now.
Speaker 2 (07:29):
But they're not just talking about it. People genuinely think
it will happen. We won't find when we get the
deal announced that actually it's all a bit less than advertised.
Speaker 1 (07:37):
So I've been talking to these exporters, and I have
been talking to these export organizations and all the people
who are involved in this. They have all been some
have been happy, some have been sad because the high
barriers which were there, they are sure to be taken off.
That's what they have been told by the officials in
you know, closed door meetings. So that is something which
(07:57):
it seems it's going to happen now. And India has
been negotiating with you for eighteen years eighteen.
Speaker 4 (08:03):
Eighteen eight years.
Speaker 1 (08:04):
Yes, they have been negotiating for eighteen years, but just
to be sure, the talks were passed in twenty fifteen
when the movie administration came for the first time, So
the talks were paused then and resumed in twenty twenty one.
So they have resumed negotiations now and this year we
saw the sense of urgency which is there. They'd announced
a deadline. They said by end of this year they
(08:24):
want to conclude a deal. Maybe this will be an
interim deal, but they will do a deal with you
this year. UK also seems like a possibility now because
given all the cures that has been created by Trump's tariff,
it seems that India would be close to achieving at
least three deals this year with U, US and UK.
Speaker 2 (08:42):
Thank you very much, Shusy. That's fantastic. If I was
sitting in the Trump White House listening to this, I
would say this is an absolute example of what Donald
Trump's trying to do. This will be a real win
for the US and for the world that after decades
of India being dedicated to keeping a sort of high
tariff pawers and protecting its domestic market, Donald Trump has
(09:04):
done something that other countries and multilateral efforts have not
been able to do. I mean, abashek, how do you
think India is viewing this? Is it If it's a
win for America. It seems like Prime Minister Modi is
also considering this a win for India absolutely.
Speaker 3 (09:20):
I think it's a win win situation for both countries.
If you look at the US position against China, it's
a game of chickens. I mean, time is of the
essens which country falls first, and in that regard, big
great deal with India, which is the most populous country
in the world and the fifth largest economy in the world,
(09:40):
has a big domestic market, would give Trump something to
boast about domestically and from India's perspective. Moody about a
decade back, he said that he would like to increase
India's manufacturing share to twenty five percent of the GDP.
While we know and understand as economists that's absolutely sort
of out of the question, but it would certainly give
(10:01):
India's industrial sector a big leg up in terms of
if it ends up being the first country to seal
this deal with the US.
Speaker 2 (10:08):
And just remind us, even before the deal, when those
famous sort of list of reciprocal tariff rates, India was
going to do relatively better than some other countries, and
you pointed out Abishek, I think that the Indian exports
might benefit just from the fact that there was a
lower tariff rate. Indian exporters are potentially looking at gains
even before this kind of deal comes in.
Speaker 3 (10:30):
So yes, the initial tartifs which were imposed, India got
a twenty six percent reciprocal tariff and when you compare
it within the region, within the Asian region.
Speaker 2 (10:39):
As opposed to the mere one hundred and forty percent
facing Chinese could.
Speaker 3 (10:42):
But even countries a Vietnam which was forty percent plus
and even the lesser developed countries are just as Bangladesh
and Pakistan, Indonesia, South Korea. I mean, all of these
countries were sort of flabbed with much higher tariffs than India,
which certainly increases India's competitiveness with other countries, and it
also helps India make up for its less competitiveness when
(11:06):
it comes to some of the other areas such as
logistic costs, bureaucracy, and the red tape which kind of
slows things down in India.
Speaker 2 (11:14):
Chris, you wrote about some of this and particularly companies
potentially seeing advantages in shifting production or increasing production in
India in one of your newsletters this week. Then that
Apple move, for example, is pretty significant.
Speaker 4 (11:29):
Yes, it's clear that from an American corporate standpoint, if
you're going to conclude that whether it's Trump or whether
it's a Democratic Party president, strains with China are not
going to go away. Tariff rates with China may not
stick at one hundred and forty five percent, but they're
(11:51):
going to be significant going forward for years to come.
There are major geostrategic issues with China. India doesn't appear
to have any of that. India doesn't have any sort
of threatening posture towards US allies in the way that
China does. Visa of v Japan, South Korea, Taiwan, not
(12:13):
an ally, but certainly a partner for the US. India
is a much friendlier option, and for decades we've seen
administration after administration in Washington actively seek out stronger ties
with New Delhi. So it would be logical to conclude
that ARC will continue. India, as Abishek pointed out, has
(12:36):
huge natural resources in terms of labor, in terms of
the ability to if you do solve the red tape,
the logistics issues, the infrastructure issues, you've got a major
labor force that could, in theory replace some of the
production that China now holds in the global supply chain.
(12:58):
And what we've seen from Apple is that they're moving
much more quickly than people had anticipated even just a
few years ago, with Apple in the past week or
so saying that they aim to assemble most of the
iPhones sold in the United States in India. So it
really is quite a dramatic change.
Speaker 2 (13:16):
And we've tended to say, oh, it's very hard to
unpack these global supply chains. But as you point out
in your piece, there was a study only a couple
of years ago on Apple's reliance on China for its
global supply chain that said even just shifting ten percent
of the production capacity out of China, where it now
makes nearly was making nearly all its iPhones would take
(13:36):
eight years. And yet, as you pointed out, there's going
to be a significant ramp and there will be potentially
in the next few months.
Speaker 4 (13:43):
I think one of the Bloomberg conferences a few years ago,
the tagline was sooner than you think. I think that
applies here. When you change incentive structures massively, it just
gives a big push. And it's not only Apple but
its suppliers like Fox, KHN and others that are also moving.
(14:05):
You know, my impression is that as time goes on,
we will see proper ecosystem, not just assembling the iPhone,
but manufacture of the inputs shifting to India as well.
Speaker 2 (14:18):
Abishek I've seen to remember, in the sort of previous
incarnations of this podcast, we had conversations around the bouts
of optimism around India, and you were sort of cautiously optimistic.
But we're also making the point that there were structural,
long term challenges that India faced in truly becoming a
sort of replacement for India as the factory of the world.
(14:40):
I mean, yes, we've seen a big shift in the
playing field in India's direction, But does Prime Minister Modi's
government have the strategy to overcome some of those issues
even as it seizes this opportunity.
Speaker 3 (14:55):
The way I look at it, I think india policymaker
and in the government recognize that the US trying to
trade war much earlier on in Trump's first presidency, and
if we look at the steps taken by the government
can at least trace it back to starting with reducing
corporate taxes in twenty nineteen towards the end of the
first Trump's first presidency, and then right after the pandemic,
(15:18):
unveeling manufacturing subsidies for domestic production, spending massive amounts of
money in upgrading India's creaking infrastructure or not creaking. Mean,
they've never really had any infrastructure in the first place,
but they've started really investing massive amounts of money in
laying new roads, new ports, new airports, and a lot
of this infrastructure is now starting to come up online,
(15:40):
and I think all of this would boost India's logistical efficiencies.
On top of all of this, when you add this
direct competitiveness, it really makes foreign investors look at India
and foreign manufacturing firms look at India in a different way.
So we did a short sort of research on this,
and just in terms of numbers, we identified some nine
(16:01):
to ten different sectors where India already has existing supply chains.
So these are sectors such as carpets or leather articles
or precious stones, furniture and textiles, and also chemicals, plastics,
and electronics where iphoned has been a key success for India,
and engineering goods. So in all of these nine to
ten different sectors, India's exports to the US in twenty
(16:23):
twenty three total about forty billion dollars. Now, when you
look at some of the other Asian countries over which
India got a tax advantage, Let's say, if you only
just look at China and Vietnam, they are exporting what
four hundred billion dollars of these goods to the US.
Speaker 2 (16:38):
So it's a lot of opportunity here.
Speaker 3 (16:40):
Yeah, So there's a massive opportunity to scale up in
these sectors. And it's not that difficult. It's not that
India does not have the technical Now, I think if
the incentive structures are aligned in the right direction, they
will find a way money will flow into these areas
to skill the people.
Speaker 2 (16:56):
It's interesting, of course, because we're talking about this as
a big opportunity. But I suspect if you put to
President Trump that he was going to enable India to
fill the gap left by Vietnam and China, when the
whole point of this whole exercise is supposed to be
about bringing production back to the US. We shall see. Chris,
you did point out a sort of irony in all
this in your newsletter, which is that for decades that
(17:16):
India's sort of been the on the naughty step in
the international financial system for not following the advice of
the IMF and others when it comes to liberalizing your
economy and certainly having an open economy. I mean, although
there has been some deregulation and liberalization, we used to
be called the permit ras. You know, you needed to
have a permit for everything, and intervention was subsidies and
(17:39):
intervention were right. I guess these days it's now so fashionable,
and that's kind of the direction that America's moving in.
That's less of an obstacle in these kind of negotiations.
Speaker 4 (17:49):
That's right. New Delhi is kind of in pole position
here in part because teach.
Speaker 2 (17:55):
Donald Trump a few things about imposing lots of subsidies
and regulations.
Speaker 4 (17:59):
Yeah, think about it. The autarcic economic model is something
that India specialized in building a wool right on exactly.
And it's because it did that and did not adopt
the sort of East Asian export lead industrial policy model
that India does not have the kind of massive trade
(18:21):
surplus that many of the East Asian economies do, and
therefore doesn't spur the kind of rass from Trump that
he reserves for China, Japan, the European Union and so on.
Speaker 2 (18:34):
Not yet.
Speaker 4 (18:35):
No, India has only been ripping off the US a
little bit. They're minor. It will be interesting to see,
as you say, the extent to which the Trump administration
wants to keep up the friend shoring model. The Biden
administration and Janet Yellen certainly really liked the idea of
friend shoring, of basing production in US partners and allies.
(19:00):
Yellen actually went to India four times as Treasury Secretary,
really dedicated a lot of time to actively encouraging supply
chains to shift to India. But, as you say, Trump,
and certainly.
Speaker 2 (19:13):
He is not sounded very keen on friends shuring.
Speaker 4 (19:15):
Now and you hear Howard Lutnik, it's all about reshing about,
you know, getting manufacturing back to Dayton and Toledo and
all of these rustbelt places in Ohio and the Great
Lake States that obviously carried Trump to victory. So it
will be something to watch.
Speaker 2 (19:34):
Abishik, I know that you have also thought a little
bit about how investors are viewing India, and of course
you talk to Bloomberg clients a lot there. Certainly there's
been a lot of optimism in the Indian markets for
several years, and now there is this discussion around it
being a safe haven, a safe place to park your
money in this very choppy global waters. We do not
(19:56):
give investment advice on this show, and I'm not going
to start now, but do you think in this w
broad sense, investors a right to see India as a
relative safe haven in this topsy turvy world.
Speaker 3 (20:05):
I think you already know I'm a very big optimist
on India.
Speaker 2 (20:10):
Just kids, since you live so.
Speaker 3 (20:12):
The way I'm tracking the economy, I've lowered my GDB
forecast for the current financial year about forty basis points.
Speaker 2 (20:19):
Zero point four of a percentage point.
Speaker 3 (20:21):
Yeah, so at six point eight percent. Even now, I
am an outlier and probably one of the most optimistic
forecasts on the street. Inflation is very low in India,
It's below the target level. The rupee a very sort
of stable currency at the moment. On top of that,
if you add India's high debt shields makes India's debt
(20:41):
also very attractive.
Speaker 2 (20:42):
So yeah, you can earn a high interest.
Speaker 3 (20:44):
High interest at the top of that a stable currency
which typically doesn't happen in ems. So it does give
India that advantage and attractive option for foreign investors. And
on top of that you add this trade advantage and
India being talked about as one of the four countries
to sign, if not the first country to sign the
trade deal with the US, so that really boosts its
(21:05):
equity markets as well.
Speaker 2 (21:06):
My team covers economics and politics. I can't help noticing
that even as we are so optimistic on the economic front,
there is an awful lot of war of words at
the very least between India and Pakistan at the moment,
following the militants attack a very violent attack in Kashmir
a few days ago. Is the world crazy to be
talking about India as a safe haven when there's this
(21:27):
kind of ratcheting up of rhetoric between these two very
long standing regional rivals who have at times gone to
war with each other other.
Speaker 3 (21:37):
Now I see this more of a geopolitical security perspective
from India perspective and not have an economic story. Having
said that, I think it does slow down the focus
on the economy by the government and then the policymakers.
And what that means is that if let's say the
Indian US were able to move at a very rapid
(21:59):
base on negotiating the trade deal, this kind of a
shift in policy focus or trying to focus energies on
the security front is going to delay things down. And
a big risk is that if things get out of hands,
then India being a safe haven, as you said, might
be questioned and we will see in days and months
to come that would get reflected in the stock market
(22:21):
if there's a major confrontation on the line of control.
But my sense is that the policy makers do understand
this that there's not much to gain. India is not
seeing a heavy political cycle this year. There's only one
state elections. Over the course of the next twelve months.
So I think from that perspective, the wise thing to
do would be to focus on the economy and gain
an upper hand over there, rather than get embroiled in
(22:43):
an unending sort of across the border confrontation.
Speaker 4 (22:48):
So perhaps Abishek India could be considered from an international
investor standpoint as a diversification play rather than a safe haven.
You put your safe haven part of your portfolio in
Switzerland and you put a little bit of extra risk
capital into India. If we were.
Speaker 2 (23:06):
Giving advice, which we obviously not, should she, as we heard, Abushek,
is a longstanding optimist about India. I can see you
looking a little bit more skeptical, and I certainly have
seen a lot of these discussions come and go over
the years. So do you think maybe we should be
a bit more cautious.
Speaker 1 (23:22):
I think cautious is the word for now, because the
people have been speaking with the companies that have been
talking with they're all very excited and then go about
the opportunity which has opened up, and they're certainly looking
forward to it, but they're on a wait and watch mode.
No one is willing to put their money online right
now because there is a fair bit of awareness that
what if tomorrow Trump and She strike a deal, so
(23:45):
all that money they put an expansion, it will all
be a waste for them. On the investors coming to India,
on the money being diverted to India. We have still
not been able to manage, you know, factor market, market reforms,
on lund site, on labor side, and these are big
grouses of these companies. It's still very difficult to acquire
land in India. The labor laws are not very friendly
(24:06):
with the companies which operate here. So these are some
of the things which the Moodi government is yet to do.
So I think there is excitement about the opportunity that
India opens up, but there is also a fair bit
of skepticism when it comes to actually investing in India.
So I think the people investors want to wait and
watch and see how things play out before they come
(24:27):
at their money.
Speaker 2 (24:32):
That is a very useful note of caution, Shreuty. It
is true that amid all this talk of you know,
there's no winners from trade wars, if you listen to
this conversation, you might think there were some gains to
be had for India and the US in the deal
that seems to be in the offering. But what's true
for Indian companies is also true for businesses around the world.
(24:54):
No one quite knows what they can count on. Shruty,
Abishek and Chris, thank you so mu.
Speaker 4 (25:00):
Much, Thank you, good pleasure, Thank you.
Speaker 2 (25:09):
Thanks for listening to Trumpnomics from Bloomberg. It was hosted
by Me, Stephanie Flanders and I was joined by Shuji Shravastava,
Abershet Gupta and Chris Anstey. Trumponomics is produced by Samasadi
and Moses and Dam with help from Chris Martlu, tala
Ahmadi and Amy Keen. Sound design is by Blake Maples
and Brendan Francis. Newnan is our executive producer. Please to
(25:31):
help others find and enjoy the show, rate it highly
and review it wherever you listen to your podcasts.
Bloomberg Audio Studios, Podcasts, radio News. I would guess that
India would be one of the first trade deals we
would sign, So watch this space.
Speaker 2 (00:22):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg.
Welcome to Trumpnomics, the podcast that looks at the economic
world of Donald Trump, how he's already shaped the global economy,
and what on earth is going to happen next. This week,
we're leaning into the global impact of trump Andomics by
asking is India the winner in Trump's trade war with China.
(00:44):
According to the White House, at least seventy countries are
queuing up to do massive trade deals with the US,
anything to avoid those reciprocal tariffs that President Trump has
put on hold for a few months. Our reporting suggests
that a much smaller number of actual negotiations are happening,
and indeed, President Trump and China's President Shijingping can't even
(01:05):
agree on whether they've talked to each other at all.
But as Treasury Secretary Scott Besnant hinted in that interview
earlier this week that you heard at the start of
the show, India's government has been negotiating and may even
be close to a deal. Even if that turns out
to be optimistic, we can already say India has been
one of the few countries seems to be benefiting from
(01:27):
the global economic uncertainty unleashed by President Trump in the
last few months. We reported last week that Apple is
seeking to import most of the phones it sells in
the US from India rather than China by the end
of this year. That's double what it's currently producing in India.
And the Indian stock market's one of the very few
to be up since tariffs were announced on so called
(01:48):
Liberation Day. So with markets ditterary everywhere, investors are even
talking about India as a safe haven. So today we're
going to get into how India's Prime Minister, India and
Modi is himself learning the art of the deal, and
also consider how India's long term ambition to replace China
as the factory of the world might have got a
(02:10):
massive leg up thanks to Donald Trump. Shrudi Shravastava is
our reporter in New Delhi and she's been breaking all
the news on that possible US India trade deal. We're
going to talk to her in a minute. We also
have Abhishek Gupta, senior India economists for Bloomberg Economics based
in Mumbai. Previously worked as an economist at Merrill Lynch
(02:31):
and a research analyst at the National Institute of Public
Finance and Policy, India's premiere macro finance think tank. And
Chris Anstey, Senior editor in Boston who writes our daily
economics newsletter and is always across everything in my experience,
Chris Abishek Shrudi, thanks very much for coming on Trumpnomics.
Speaker 3 (02:49):
It's a pleasure.
Speaker 1 (02:50):
Happy to be here. Stephanie Shrudy.
Speaker 2 (02:57):
I do want to start the conversation with you because
you had a big scoop last week about what was
potentially in this US India trade deal, and we should say,
we're having this conversation on Tuesday afternoon or evening India time,
so just get us up to speed. What do we
think is going to be in it? And how surprising
is it, you know, how far it's gone in just
a few weeks.
Speaker 1 (03:17):
Things have indeed been moving very fast when it comes
to negotiations which are happening on trade front, and it
appears that India is in front of the line when
it comes to securing a trade deal with the US.
This has been said by several officials in Washington. Officials
in New Darry are also optimistic of making use of
this ninety day pause which Strup administration has given. And
(03:40):
they have been moving fast to you know, they have
been holding these virtual negotiations. There was a team last
week of Indian trade officials in Washington to advance the
negotiations which have been taking place. The Indian government issued
a statement saying that they're looking to conclude a deal
by fall of this year. Now the signals that there
might be a possibility of six curing some sort of
(04:02):
interim framework even before the fault deadline arrives. And I
would say that India has played its cards really well
so far. It has refrained from retaliation. Even before Trump
came to the White House, the government made sure that
it starts reducing duties on some of the key asks
of Trump. In its federal budget, India overhauled its tariff policy.
(04:22):
India has been labeled as a tariffs king by the US,
but the US president several times, so India tried to
ensure that it shakes off that label. It brought down
tariffs on some eight thousand, five hundred items and that
included some of the key ask of US president, like
bourbon whiskey or tariffs on Harley Davidson bikes, and that
I think has worked in India's favor. It has been appreciated,
(04:45):
so to say in the Trump administration that India's working
in good faith. And as you rightly said, this is
movie's art of making reed. So the two sides have
finalized what we call terms of reference, and this happened
during US Vice President J. D. Vance's last week. He
was an afford trip to India. He met Prime Minister Moody.
He also showed a bit of softer diplomacy, which he's
(05:08):
not very well known for.
Speaker 2 (05:09):
He had his photos with his family in front of
Taj Mahal or the mandatory photose you have to have.
Speaker 1 (05:14):
Absolutely absolutely, so all those things basically they showcase that
there is some sort of understanding between India and US
and they expect to take forward this collaboration that they
are trying to show. The two sides have agreed to
discuss on nineteen chapters, nineteen categories what we have been
tool and we reported it last week as well, that
they are looking to discuss greater market access for Indian
(05:37):
and American goods, and America has specifically asked for greater
market access for agriculture goods. They will also be talks
on e commerce. Some of these American companies like Amazon,
they have been calling for level playing feet for a
long time. Now they are going to discuss about a
rule that India has that you have to store data
on local servers.
Speaker 2 (05:57):
India is a country that's kind of been famous for
having a lot of both visible and invisible trade barriers.
Was there any signal before this that Prime Minister Moody
was minded to make all of these changes and to
open up or do we really think that he has
been spurred by Donald Trump's tariff war? That's for you.
Speaker 1 (06:18):
Shruti, one of the trade experts we spoke to, said
this was the first significant overhaul that happened in decades
in India. So of course India has maintained high tariffs
for a long time. It says that it has done
so to protect its domestic industries. For instance, auto auto
has had one fifty percent duty and now they have
been slashed to seventy percent in the federal budget that
(06:40):
happened in February. So clearly India preempted the tariff war,
and it took measures to ensure that it has a
first mover advantage, and I think that clearly worked.
Speaker 2 (06:50):
There's been discussion of, for example, the EU India Tariff
trade Deal, the UK India Trade Deal for many years
and they've never quite got off the ground. I mean,
I remember from the sad days I've spent at wto
ministerials and when it came to anything to do with agriculture,
India was the absolute hold out in terms of wanting
(07:11):
to get hold on to the barriers against competition in
agriculture in that kind of global context. So do we
think that there will be real progress, that India will
do things that it has been unwilling to do with
any in any other forum over the last few decades.
Speaker 1 (07:25):
Absolutely, Stephanie. That is what we are seeing is unfolding
right now.
Speaker 2 (07:29):
But they're not just talking about it. People genuinely think
it will happen. We won't find when we get the
deal announced that actually it's all a bit less than advertised.
Speaker 1 (07:37):
So I've been talking to these exporters, and I have
been talking to these export organizations and all the people
who are involved in this. They have all been some
have been happy, some have been sad because the high
barriers which were there, they are sure to be taken off.
That's what they have been told by the officials in
you know, closed door meetings. So that is something which
(07:57):
it seems it's going to happen now. And India has
been negotiating with you for eighteen years eighteen.
Speaker 4 (08:03):
Eighteen eight years.
Speaker 1 (08:04):
Yes, they have been negotiating for eighteen years, but just
to be sure, the talks were passed in twenty fifteen
when the movie administration came for the first time, So
the talks were paused then and resumed in twenty twenty one.
So they have resumed negotiations now and this year we
saw the sense of urgency which is there. They'd announced
a deadline. They said by end of this year they
(08:24):
want to conclude a deal. Maybe this will be an
interim deal, but they will do a deal with you
this year. UK also seems like a possibility now because
given all the cures that has been created by Trump's tariff,
it seems that India would be close to achieving at
least three deals this year with U, US and UK.
Speaker 2 (08:42):
Thank you very much, Shusy. That's fantastic. If I was
sitting in the Trump White House listening to this, I
would say this is an absolute example of what Donald
Trump's trying to do. This will be a real win
for the US and for the world that after decades
of India being dedicated to keeping a sort of high
tariff pawers and protecting its domestic market, Donald Trump has
(09:04):
done something that other countries and multilateral efforts have not
been able to do. I mean, abashek, how do you
think India is viewing this? Is it If it's a
win for America. It seems like Prime Minister Modi is
also considering this a win for India absolutely.
Speaker 3 (09:20):
I think it's a win win situation for both countries.
If you look at the US position against China, it's
a game of chickens. I mean, time is of the
essens which country falls first, and in that regard, big
great deal with India, which is the most populous country
in the world and the fifth largest economy in the world,
(09:40):
has a big domestic market, would give Trump something to
boast about domestically and from India's perspective. Moody about a
decade back, he said that he would like to increase
India's manufacturing share to twenty five percent of the GDP.
While we know and understand as economists that's absolutely sort
of out of the question, but it would certainly give
(10:01):
India's industrial sector a big leg up in terms of
if it ends up being the first country to seal
this deal with the US.
Speaker 2 (10:08):
And just remind us, even before the deal, when those
famous sort of list of reciprocal tariff rates, India was
going to do relatively better than some other countries, and
you pointed out Abishek, I think that the Indian exports
might benefit just from the fact that there was a
lower tariff rate. Indian exporters are potentially looking at gains
even before this kind of deal comes in.
Speaker 3 (10:30):
So yes, the initial tartifs which were imposed, India got
a twenty six percent reciprocal tariff and when you compare
it within the region, within the Asian region.
Speaker 2 (10:39):
As opposed to the mere one hundred and forty percent
facing Chinese could.
Speaker 3 (10:42):
But even countries a Vietnam which was forty percent plus
and even the lesser developed countries are just as Bangladesh
and Pakistan, Indonesia, South Korea. I mean, all of these
countries were sort of flabbed with much higher tariffs than India,
which certainly increases India's competitiveness with other countries, and it
also helps India make up for its less competitiveness when
(11:06):
it comes to some of the other areas such as
logistic costs, bureaucracy, and the red tape which kind of
slows things down in India.
Speaker 2 (11:14):
Chris, you wrote about some of this and particularly companies
potentially seeing advantages in shifting production or increasing production in
India in one of your newsletters this week. Then that
Apple move, for example, is pretty significant.
Speaker 4 (11:29):
Yes, it's clear that from an American corporate standpoint, if
you're going to conclude that whether it's Trump or whether
it's a Democratic Party president, strains with China are not
going to go away. Tariff rates with China may not
stick at one hundred and forty five percent, but they're
(11:51):
going to be significant going forward for years to come.
There are major geostrategic issues with China. India doesn't appear
to have any of that. India doesn't have any sort
of threatening posture towards US allies in the way that
China does. Visa of v Japan, South Korea, Taiwan, not
(12:13):
an ally, but certainly a partner for the US. India
is a much friendlier option, and for decades we've seen
administration after administration in Washington actively seek out stronger ties
with New Delhi. So it would be logical to conclude
that ARC will continue. India, as Abishek pointed out, has
(12:36):
huge natural resources in terms of labor, in terms of
the ability to if you do solve the red tape,
the logistics issues, the infrastructure issues, you've got a major
labor force that could, in theory replace some of the
production that China now holds in the global supply chain.
(12:58):
And what we've seen from Apple is that they're moving
much more quickly than people had anticipated even just a
few years ago, with Apple in the past week or
so saying that they aim to assemble most of the
iPhones sold in the United States in India. So it
really is quite a dramatic change.
Speaker 2 (13:16):
And we've tended to say, oh, it's very hard to
unpack these global supply chains. But as you point out
in your piece, there was a study only a couple
of years ago on Apple's reliance on China for its
global supply chain that said even just shifting ten percent
of the production capacity out of China, where it now
makes nearly was making nearly all its iPhones would take
(13:36):
eight years. And yet, as you pointed out, there's going
to be a significant ramp and there will be potentially
in the next few months.
Speaker 4 (13:43):
I think one of the Bloomberg conferences a few years ago,
the tagline was sooner than you think. I think that
applies here. When you change incentive structures massively, it just
gives a big push. And it's not only Apple but
its suppliers like Fox, KHN and others that are also moving.
(14:05):
You know, my impression is that as time goes on,
we will see proper ecosystem, not just assembling the iPhone,
but manufacture of the inputs shifting to India as well.
Speaker 2 (14:18):
Abishek I've seen to remember, in the sort of previous
incarnations of this podcast, we had conversations around the bouts
of optimism around India, and you were sort of cautiously optimistic.
But we're also making the point that there were structural,
long term challenges that India faced in truly becoming a
sort of replacement for India as the factory of the world.
(14:40):
I mean, yes, we've seen a big shift in the
playing field in India's direction, But does Prime Minister Modi's
government have the strategy to overcome some of those issues
even as it seizes this opportunity.
Speaker 3 (14:55):
The way I look at it, I think india policymaker
and in the government recognize that the US trying to
trade war much earlier on in Trump's first presidency, and
if we look at the steps taken by the government
can at least trace it back to starting with reducing
corporate taxes in twenty nineteen towards the end of the
first Trump's first presidency, and then right after the pandemic,
(15:18):
unveeling manufacturing subsidies for domestic production, spending massive amounts of
money in upgrading India's creaking infrastructure or not creaking. Mean,
they've never really had any infrastructure in the first place,
but they've started really investing massive amounts of money in
laying new roads, new ports, new airports, and a lot
of this infrastructure is now starting to come up online,
(15:40):
and I think all of this would boost India's logistical efficiencies.
On top of all of this, when you add this
direct competitiveness, it really makes foreign investors look at India
and foreign manufacturing firms look at India in a different way.
So we did a short sort of research on this,
and just in terms of numbers, we identified some nine
(16:01):
to ten different sectors where India already has existing supply chains.
So these are sectors such as carpets or leather articles
or precious stones, furniture and textiles, and also chemicals, plastics,
and electronics where iphoned has been a key success for India,
and engineering goods. So in all of these nine to
ten different sectors, India's exports to the US in twenty
(16:23):
twenty three total about forty billion dollars. Now, when you
look at some of the other Asian countries over which
India got a tax advantage, Let's say, if you only
just look at China and Vietnam, they are exporting what
four hundred billion dollars of these goods to the US.
Speaker 2 (16:38):
So it's a lot of opportunity here.
Speaker 3 (16:40):
Yeah, So there's a massive opportunity to scale up in
these sectors. And it's not that difficult. It's not that
India does not have the technical Now, I think if
the incentive structures are aligned in the right direction, they
will find a way money will flow into these areas
to skill the people.
Speaker 2 (16:56):
It's interesting, of course, because we're talking about this as
a big opportunity. But I suspect if you put to
President Trump that he was going to enable India to
fill the gap left by Vietnam and China, when the
whole point of this whole exercise is supposed to be
about bringing production back to the US. We shall see. Chris,
you did point out a sort of irony in all
this in your newsletter, which is that for decades that
(17:16):
India's sort of been the on the naughty step in
the international financial system for not following the advice of
the IMF and others when it comes to liberalizing your
economy and certainly having an open economy. I mean, although
there has been some deregulation and liberalization, we used to
be called the permit ras. You know, you needed to
have a permit for everything, and intervention was subsidies and
(17:39):
intervention were right. I guess these days it's now so fashionable,
and that's kind of the direction that America's moving in.
That's less of an obstacle in these kind of negotiations.
Speaker 4 (17:49):
That's right. New Delhi is kind of in pole position
here in part because teach.
Speaker 2 (17:55):
Donald Trump a few things about imposing lots of subsidies
and regulations.
Speaker 4 (17:59):
Yeah, think about it. The autarcic economic model is something
that India specialized in building a wool right on exactly.
And it's because it did that and did not adopt
the sort of East Asian export lead industrial policy model
that India does not have the kind of massive trade
(18:21):
surplus that many of the East Asian economies do, and
therefore doesn't spur the kind of rass from Trump that
he reserves for China, Japan, the European Union and so on.
Speaker 2 (18:34):
Not yet.
Speaker 4 (18:35):
No, India has only been ripping off the US a
little bit. They're minor. It will be interesting to see,
as you say, the extent to which the Trump administration
wants to keep up the friend shoring model. The Biden
administration and Janet Yellen certainly really liked the idea of
friend shoring, of basing production in US partners and allies.
(19:00):
Yellen actually went to India four times as Treasury Secretary,
really dedicated a lot of time to actively encouraging supply
chains to shift to India. But, as you say, Trump,
and certainly.
Speaker 2 (19:13):
He is not sounded very keen on friends shuring.
Speaker 4 (19:15):
Now and you hear Howard Lutnik, it's all about reshing about,
you know, getting manufacturing back to Dayton and Toledo and
all of these rustbelt places in Ohio and the Great
Lake States that obviously carried Trump to victory. So it
will be something to watch.
Speaker 2 (19:34):
Abishik, I know that you have also thought a little
bit about how investors are viewing India, and of course
you talk to Bloomberg clients a lot there. Certainly there's
been a lot of optimism in the Indian markets for
several years, and now there is this discussion around it
being a safe haven, a safe place to park your
money in this very choppy global waters. We do not
(19:56):
give investment advice on this show, and I'm not going
to start now, but do you think in this w
broad sense, investors a right to see India as a
relative safe haven in this topsy turvy world.
Speaker 3 (20:05):
I think you already know I'm a very big optimist
on India.
Speaker 2 (20:10):
Just kids, since you live so.
Speaker 3 (20:12):
The way I'm tracking the economy, I've lowered my GDB
forecast for the current financial year about forty basis points.
Speaker 2 (20:19):
Zero point four of a percentage point.
Speaker 3 (20:21):
Yeah, so at six point eight percent. Even now, I
am an outlier and probably one of the most optimistic
forecasts on the street. Inflation is very low in India,
It's below the target level. The rupee a very sort
of stable currency at the moment. On top of that,
if you add India's high debt shields makes India's debt
(20:41):
also very attractive.
Speaker 2 (20:42):
So yeah, you can earn a high interest.
Speaker 3 (20:44):
High interest at the top of that a stable currency
which typically doesn't happen in ems. So it does give
India that advantage and attractive option for foreign investors. And
on top of that you add this trade advantage and
India being talked about as one of the four countries
to sign, if not the first country to sign the
trade deal with the US, so that really boosts its
(21:05):
equity markets as well.
Speaker 2 (21:06):
My team covers economics and politics. I can't help noticing
that even as we are so optimistic on the economic front,
there is an awful lot of war of words at
the very least between India and Pakistan at the moment,
following the militants attack a very violent attack in Kashmir
a few days ago. Is the world crazy to be
talking about India as a safe haven when there's this
(21:27):
kind of ratcheting up of rhetoric between these two very
long standing regional rivals who have at times gone to
war with each other other.
Speaker 3 (21:37):
Now I see this more of a geopolitical security perspective
from India perspective and not have an economic story. Having
said that, I think it does slow down the focus
on the economy by the government and then the policymakers.
And what that means is that if let's say the
Indian US were able to move at a very rapid
(21:59):
base on negotiating the trade deal, this kind of a
shift in policy focus or trying to focus energies on
the security front is going to delay things down. And
a big risk is that if things get out of hands,
then India being a safe haven, as you said, might
be questioned and we will see in days and months
to come that would get reflected in the stock market
(22:21):
if there's a major confrontation on the line of control.
But my sense is that the policy makers do understand
this that there's not much to gain. India is not
seeing a heavy political cycle this year. There's only one
state elections. Over the course of the next twelve months.
So I think from that perspective, the wise thing to
do would be to focus on the economy and gain
an upper hand over there, rather than get embroiled in
(22:43):
an unending sort of across the border confrontation.
Speaker 4 (22:48):
So perhaps Abishek India could be considered from an international
investor standpoint as a diversification play rather than a safe haven.
You put your safe haven part of your portfolio in
Switzerland and you put a little bit of extra risk
capital into India. If we were.
Speaker 2 (23:06):
Giving advice, which we obviously not, should she, as we heard, Abushek,
is a longstanding optimist about India. I can see you
looking a little bit more skeptical, and I certainly have
seen a lot of these discussions come and go over
the years. So do you think maybe we should be
a bit more cautious.
Speaker 1 (23:22):
I think cautious is the word for now, because the
people have been speaking with the companies that have been
talking with they're all very excited and then go about
the opportunity which has opened up, and they're certainly looking
forward to it, but they're on a wait and watch mode.
No one is willing to put their money online right
now because there is a fair bit of awareness that
what if tomorrow Trump and She strike a deal, so
(23:45):
all that money they put an expansion, it will all
be a waste for them. On the investors coming to India,
on the money being diverted to India. We have still
not been able to manage, you know, factor market, market reforms,
on lund site, on labor side, and these are big
grouses of these companies. It's still very difficult to acquire
land in India. The labor laws are not very friendly
(24:06):
with the companies which operate here. So these are some
of the things which the Moodi government is yet to do.
So I think there is excitement about the opportunity that
India opens up, but there is also a fair bit
of skepticism when it comes to actually investing in India.
So I think the people investors want to wait and
watch and see how things play out before they come
(24:27):
at their money.
Speaker 2 (24:32):
That is a very useful note of caution, Shreuty. It
is true that amid all this talk of you know,
there's no winners from trade wars, if you listen to
this conversation, you might think there were some gains to
be had for India and the US in the deal
that seems to be in the offering. But what's true
for Indian companies is also true for businesses around the world.
(24:54):
No one quite knows what they can count on. Shruty,
Abishek and Chris, thank you so mu.
Speaker 4 (25:00):
Much, Thank you, good pleasure, Thank you.
Speaker 2 (25:09):
Thanks for listening to Trumpnomics from Bloomberg. It was hosted
by Me, Stephanie Flanders and I was joined by Shuji Shravastava,
Abershet Gupta and Chris Anstey. Trumponomics is produced by Samasadi
and Moses and Dam with help from Chris Martlu, tala
Ahmadi and Amy Keen. Sound design is by Blake Maples
and Brendan Francis. Newnan is our executive producer. Please to
(25:31):
help others find and enjoy the show, rate it highly
and review it wherever you listen to your podcasts.
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