A fairly recent Journal of Commerce article titled: “Cheaper than China: India–US trade surges as sourcing slowly shifts away from China,” gives us even more confirmation that exports from the Subcontinent to North America are booming to China’s cost.
The article itself (no longer available on the site) can be seen here, and I’ll summarize some of its key points below:
What do we learn about rising Indian exports to the USA here?
We know that international trade has rebounded post-Covid and India seems to be a beneficiary of this, because American companies who are, in particular, trying to diversify supply chains outside of China are striving to find suppliers there. While tariffs on China-made goods remain, it makes sense for US businesses to look for options in ‘friendly’ countries, at least following a China-plus strategy (as outlined here in our interview with the authors of ‘Enterprise China’).
Here are some key points from the article that show that India/USA trade is booming:
- Container shipping from India to the USA increased by 23.5% in 2021, and a further 8.3% in the first half of 2022.
- Total merchandise trade between India and the USA rose by a large 48.3% to an all-time high of US$119.42 billion in the financial year 21/22.
- In 21/22, the USA became India’s top trading partner pushing China into second place.
- Improvements in worker training and automation have started to bring down production costs in India (especially for labor-intensive products), helping it to compete more fiercely with China.
- The author makes the bold claim that labor-intensive products are now around 30% cheaper in India than those sourced from China…this claim only applies to a very narrow range of products, but for the majority of products China is actually still price competitive.
- China’s zealous Zero-Covid approach (which has now ended) that caused lockdowns and disruption to supply chains and its relationship with Russia were causes of American businesses increasing their procurement from India over the past few years. (Decisions to relocate production may only translate into the trade data 2 or 3 years down the road.)
- American corporations such as Walmart, Amazon, and Target placed larger orders than usual from India in the first half of 2022 in order to build stock to protect them from supply chain disruptions and have coverage for the festive period.
- The American UFLPA (Uyghur Forced Labor Prevention Act) is making it increasingly difficult for American apparel brands to source textiles and garments from China due to concerns over cotton’s origins and whether there has been any forced labor in the supply chain. This is likely a contributing cause of Chinese apparel exports to the USA falling by almost 25% between 2019 and 2022, while India’s exports of the same increased by over 50% during the same period.
- Falling shipping rates are expected to further spur trade between India and the USA, especially shipping to the East Coast. For example, as of Jan ’23 the approximate current freight costs between India and the US East Coast have fallen to just 2,353 USD for a 20ft container and 3,371 USD for 40ft (this does not include additional charges).
- Importers who are looking for a China alternative will also be encouraged that shipping lines have more capacity in India due to repositioning where empty containers land and adding additional routes and sailings between India’s 2 largest ports: Mundra in Gujarat, and Jawaharlal Nehru in Mumbai.
India’s popularity is growing along with its ability to provide credible competition to China as a manufacturing base. I saw this in person when visiting in the Summer of ’22 (you can read about my findings here and here).
One way China dominates is through having a mature manufacturing and logistics infrastructure. India has recently been well-known for being a region that is more difficult to move goods around and ship from, but with the addition of more shipping routes to and from its major ports and much better roads, the gap is closing.
However, it may yet be some time before we can truly say that India competes on price with China for more than just a few key labor-intensive products.
In general, buying them from India today instead of China makes sense mostly if one is looking for different/original products (and escape the “everyone copies each other” China syndrome), and to avoid tariffs and sell on the USA market.