The trade tensions between the US and China have entered a new phase with fresh rounds of tit-for-tat restrictions. Post the United States’ export restrictions on China over software, high-bandwidth memory chips, and essential computer chip-making equipment, China retaliated by stopping the sale of critical high-tech materials like gallium, germanium, and antimony to the United States. The continuous geopolitical conflict between the two superpowers, which is changing the face of international trade, is being worsened by this most recent development.
Opportunities for Connecting Economies
Beyond the current dispute between the US and China, this trade war is significant. Opportunities for so-called “connecting economies”—nations that do not identify with either China or the United States—have been made possible by the continued tensions. One notable benefactor of this friction is India in particular. As China’s proportion of US imports has steadily decreased since 2019, nations like Vietnam, Mexico, and India have been able to seize expanding export prospects to the US since the US-China trade war began during Donald Trump’s administration. The trade war has forced American companies to diversify their supply chains away from China, which is the direct cause of this change.
China’s move to partially restrict the export of strategically important commodities was followed by its export ban on Tuesday. In an effort to regulate the flow of vital resources utilized in high-tech companies, the new regulations require Chinese exporters to apply for licenses prior to shipping these items. The US increased the number of Chinese enterprises that were subject to export restrictions on memory chips, software and equipment used in the production of semiconductors, prompting this decision. The limitations imposed by the US government are intended to limit China’s progress in developing its semiconductor sector, which is essential to its technical aspirations, which include military applications, telecommunications, and artificial intelligence.
The two powers’ tit-for-tat exchange has significant consequences for international supply chains and trade. The worldwide market for semiconductors and high-tech materials, which are crucial parts of everything from consumer electronics to military hardware, is changing as a result of the trade war. Countries all over the world are searching for substitute suppliers as China restricts its exports of these resources, which helps nations like India that are ideally positioned to fill the voids created by China’s limitations.
Earlier this year, Gita Gopinath, the Deputy Managing Director of the International Monetary Fund (IMF), discussed the increasing participation of non-aligned countries in the current international trade conflicts. In contrast to the Cold War era, when nations like India were economically smaller and less integrated into global supply networks, today’s non-aligned governments have significant economic and diplomatic influence. Today’s non-aligned states hold considerable economic and diplomatic clout, in contrast to the Cold War era when countries such as India were economically smaller and less linked into global supply chains. According to Gita, these countries—which do not support either China or the United States—are becoming more and more significant as go-betweens for competing economic blocs. Their function as “connectors” can assist in reducing the expenses associated with the growing trade fragmentation in the modern global economy.
Additionally, Gopinath contrasted the current state of trade fragmentation with that during the Cold War, pointing out that although trade between the Eastern and Western blocs was severely restricted at the time, it is still rather minimal today. However, she underlined that because international trade is now much more intertwined, the stakes are larger. At the beginning of the Cold War, goods commerce made up only 16% of GDP; today, it makes up 45%. Because of increased trade obstacles and protectionist measures, today’s fragmentation is more expensive due to the growth in global trade. Trade restrictions inside blocs characterized the Cold War era, but protectionism is more pervasive today as nations retreat home and try to insulate their sectors from outside competition.
India’s efforts
In an effort to become a global hub for semiconductor manufacture, India is making far greater investments in chip manufacturing. The Indian government has now chosen to expand its project outlay to $15 billion after previously approving $10 billion for the first phase of the chip manufacturing incentive strategy. The goal of this action is to decrease dependency on foreign suppliers and increase domestic semiconductor manufacture.
One of the biggest companies in India, Tata, is making significant advancements in the semiconductor sector .India’s first commercial semiconductor fabrication plant is built by Tata in collaboration with Taiwan’s Powerchip Semiconductor Manufacturing Corporation(PSMC). It is estimated that the plant will be critical to India’s efforts to become a dominant player in the global semiconductor market. It is anticipated that this plant will be crucial to India’s attempts to establish itself as a major force in the world semiconductor market. Three assembly and testing plants have also been authorized by the Indian government. Tata is building an assembly facility in Assam, while US-based Micron Technology is building one of these units.
These steps are part of India’s broader strategy to improve its position in the global supply chain for semiconductors. India is making a significant contribution to the global shift in reliance on semiconductors by capitalizing on the shift in trade dynamics brought about by the US-China competition. In addition to enhancing its economic position, India is contributing to the diversification of global supply chains by increasing its ability to manufacture semiconductors and attracting international partners.
Overall, by the growing trade conflict between the US and China, the global economy is being significantly impacted. Even while there is still a lot of direct rivalry between the two superpowers, non-aligned nations like India are moving forward to act as vital links between rival economic blocs. India stands to benefit from the further fragmentation of international trade as it steps up its efforts to build a strong semiconductor industry.
