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I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Welcome to Trumponomics, 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 Trumponomics by asking, is India the winner in Trump's trade war with China?
According to the White House, at least 70 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 Xi Jinping can't even agree on whether they've talked to each other at all. But as Treasury Secretary Scott Besant hinted in
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 that seems to be benefiting from 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 Liberation Day.
So with markets jittery everywhere, investors are even talking about India as a safe haven. So today we're going to get into how India's Prime Minister Narendra 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 massive leg up thanks to Donald Trump.
Shruti Shrivastava 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 economist for Bloomberg Economics based in Mumbai, previously worked as an economist at Merrill Lynch and a research analyst at the National Institute of Public Finance and Policy, India's premier 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, Abhishek, Shruti, thanks very much for coming on Trumponomics. It's a pleasure. Happy to be here, Stephanie.
Shruti, 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? 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 Delhi are also optimistic of making use of this 90-day pause, which Trump administration has given. And 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 are looking to conclude a deal by fall of this year. Now, this signals that there might be a possibility of securing some sort of interim framework even before the fall 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. India has been labelled as a tariff king by the US, by the US president several times. So India tried to ensure that it shakes off that label. It brought down tariffs on some 8,500 items and that included some of the key asks 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, so to say, in the Trump administration that India is working in good faith.
And as you rightly said, this is Modi's art of making deal. So the two sides have finalized what we call terms of reference. And this happened during US Vice President J.D. Vance's visit last week. He was in a four-day trip to India. He met Prime Minister Modi. He also showed a bit of softer diplomacy, which he's not very well known for. And he had his photos with his family in front of Taj Mahal, all the mandatory photos you have to have. 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 19 chapters, 19 categories. What we have been told, and we reported it last week as well, that they are looking to discuss greater market access for Indian and American goods.
And America has specifically asked for greater market access for agriculture goods. There 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.
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 Modi 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, 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 150% duty and now they have been slashed to 70%.
in the federal budget that 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.
There's been discussion of, for example, the EU-India tariff trade deal, a 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 spent at WTO ministerials, when it came to anything to do with agriculture, India was the absolute holdout in terms of wanting 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 in any other forum over the last few decades? Absolutely, Stephanie. That is what we are seeing is unfolding right now. 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. So I've been talking to these exporters and I've 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. 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 it seems it's going to happen now. And India has been negotiating with EU for 18 years. 18 years of negotiation. They have been negotiating for
18 years. But just to be sure, the talks were paused in 2015 when the Modi administration came for the first time. So the talks were paused then and resumed in 2021. So they have resumed negotiations now. And this year, we saw the sense of urgency, which is that they announced a deadline. They said by end of this year, they want to conclude a deal.
Maybe this will be an interim deal, but they will do a deal with EU 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 EU, US and UK.
Thank you very much, Shruti. 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. After decades of India being dedicated to keeping a sort of high tariff barriers and protecting its domestic market, Donald Trump has done something that other countries and multilateral efforts have not been able to do. I mean, Abhishek, how do you think...
India is viewing this? If it's a win for America, it seems like Prime Minister Modi is also considering this a win for India. Absolutely. 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 essence, which country falls first. And in that regard, big trade deal with India, which is the most populous country in the world,
And the fifth largest economy in the world has a big domestic market, would give Trump something to boast about domestically. And from India's perspective, Modi, about a decade back, he said that he would like to increase India's manufacturing share to 25% of the GDP. While we know and understand as economists that
absolutely sort of out of the question, but it would certainly give India's industrial sector a big leg up in terms of Fitenza being the first country to seal this deal with the US. And just remind us, even before the deal, when those famous lists of reciprocal tariff rates, India was going to do relatively better than some other countries. And you pointed out, Abhishek, 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. So, yes, the initial tariffs which were imposed, India got a 26% reciprocal tariff. And when you compare it within the region, within the Asian region... As opposed to the mere 140% facing Chinese goods. But even countries like Vietnam, which was 40% plus...
And even the lesser developed countries such as Bangladesh and Pakistan, Indonesia, South Korea, I mean, all of these countries were sort of slabbed with much higher tariffs than India, which certainly increases India's competitiveness vis-a-vis these other countries. And it also helps India make up for its less competitiveness when 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. Chris, you wrote about some of this, particularly companies potentially seeing advantages in shifting production or increasing production in India in one of your newsletters this week. And that Apple move, for example, is pretty significant. 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 145%, but they're going to be significant going forward for years to come. There are major geostrategic issues with China. India doesn't appear to have any
any of that. India doesn't have any sort of threatening posture towards U.S. allies in the way that China does vis-a-vis Japan, South Korea, Taiwan, not an ally, but certainly a partner for the U.S. India is a much friendlier option. And for decades, we've seen administration after administration in Washington act
seek out stronger ties with New Delhi. So it would be logical to conclude that arc will continue. India, as Abhishek pointed out, has 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. 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.
And we've tended to say, oh, it's very hard to unpick 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 10% of production capacity out of China, where it now was making nearly all its iPhones, would take 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.
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 it's suppliers like Foxconn and others that are also moving. 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.
Abhishek, I seem to remember in the previous incarnations of this podcast, we had conversations around the bouts of optimism around India. And you were sort of cautiously optimistic, but were 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. 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?
The way I look at it, I think India policymakers and the government recognized this U.S.-China trade war much earlier on in Trump's first presidency. And if we look at the steps taken by the government, we can at least trace it back to starting with reducing corporate taxes in 2019 towards the end of Trump's first presidency.
And then right after the pandemic, unveiling manufacturing subsidies for domestic production, spending massive amounts of money in upgrading India's creaking infrastructure. Or not creaking, I 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. And I think all of this would boost India's logistical efficiencies. On top of all of this, when you add this tariff 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 to 10 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 iPhone has been a key success for India, and engineering goods. So in all of these nine to 10 different sectors, India's exports to the US in 2023 total about $40 billion.
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 about $400 billion of these goods to the U.S. So it's a lot of opportunity here. 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 know-how.
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. 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 U.S.,
We shall see. Chris, you did point out a sort of irony in all this in your newsletter, which is that for decades, India's sort of been on the naughty step in the international financial system for not following the advice of the IMF and others when it comes to liberalising your economy and certainly having an open economy. I mean, although there has been some deregulation and liberalisation, we used to be called the permit raj. You know, you needed to have a permit for everything. And in
intervention was subsidies and intervention were rife. 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.
That's right. New Delhi is kind of in pole position here, in part because... To teach Donald Trump a few things about imposing lots of subsidies and regulations. Yeah, if you think about it, the autarkic economic model is something that India specialized in. Building a wall around your country. Exactly. And it's because it
did that and did not adopt the sort of East Asian export-led industrial policy model that India does not have the kind of massive trade surplus that many of the East Asian economies do, and therefore doesn't spur the kind of wrath from Trump that India
He reserves for China, Japan, the European Union, and so on. Not yet. No, India has only been ripping off the U.S. 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 like the idea of friend-shoring, of basing production in U.S.
US partners and allies. 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 has certainly... He has not sounded very keen on French shoring. No, and you hear Howard Lutnick,
It's all about reshoring, about, you know, getting manufacturing back to Dayton and Toledo and all of these Rust Belt places in Ohio and the Great Lakes states that obviously carried Trump to victory. So it will be something to watch.
Abhishek, 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...
very choppy global waters. We do not give investment advice on this show, and I'm not going to start now. But do you think in the sort of broad sense, investors are right to see India as a relative safe haven in this topsy-turvy world?
I think you already know I'm a very big optimist on India. Just good since you live there. So the way I'm tracking the economy, I've lowered my GDP forecast for the current financial year by 40 basis points. 0.4 of a percentage point. Yeah, so it's 6.8%. Even now, I am an outlier and probably one of the most optimistic forecasts on the street. In
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 yields,
makes India's debt also very attractive. So yeah, you can earn a high interest. High interest and on top of that, a stable currency, which typically doesn't happen in EMs. So it does give India that advantage and attractive options for foreign investors. And on top of that, you add this trade advantage and India being talked about as one of the first countries to sign, if not the first country to sign the trade deal with the US. So that really
boosts its equity markets as well. 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 kind of ratcheting up of rhetoric between these two very long-standing countries?
regional rivals who have at times gone to war with each other? As of now, I see this more of a geopolitical security perspective from India's perspective and not as 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 U.S. were able to move at a very rapid pace 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 escalate.
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 if there's a major confrontation on the line of control. But my sense is that the policymakers 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 12 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 an unending sort of across the border confrontation.
So perhaps, Abhishek, 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 giving advice, which we obviously not should.
Shriji, as we heard, Abhishek is a longstanding optimist about India. I can see you looking a little bit more sceptical 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?
I think cautious is the word for now because the people I have been speaking with, the companies I have been talking with, they're all very excited and gung-ho 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 weariness that what if tomorrow Trump and Xi
strike a deal. So all that money they put in 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 factor market reforms on land side, on labour side. And these are big grouses of these companies. It's still very difficult to acquire land in India. The labour laws are not very friendly with the companies which operate here. So these are some of the things which the Modi 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 scepticism 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 commit their money. That is a very useful note of caution, Shruti. 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 offing. But
What's true for Indian companies is also true for businesses around the world. No one quite knows what they can count on. Shruti, Abhishek and Chris, thank you so much. Thank you. A pleasure. Thank you.
Thanks for listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined by Shruthi Srivastava, Abhishek Gupta, and Chris Anstey. Trumponomics is produced by Samar Saadi and Moses Andam, with help from Chris Martlew, Tala Amadi, and Amy Keene. Sound design is by Blake Maples, and Brendan Francis Newnham is our executive producer. And please, to help others find and enjoy the show, rate it highly and review it wherever you listen to your podcasts.
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