[Answered] Discuss the implications of “China Shock 2.0” on global trade, with a focus on its effects on India’s manufacturing sector and trade balance. What policy measures should India adopt, to mitigate the negative impacts of this shock?

“China Shock 2.0” refers to the renewed wave of Chinese exports that are disrupting global markets, driven by China’s ambition to move up the export value chain amid a domestic demand slump.

Implications of “China Shock 2.0” on Global Trade, Trade Balance &Manufacturing Sector

• Increased Protectionism:The US has responded to China’s export surge by imposing steep tariffs, including 100% duties on EVs and 50% on solar cells, steel, and aluminum. Similar measures are being adopted by India and other countries to safeguard domestic industries.
• Competition in High-Tech Sectors:China’s renewed export push, particularly in high-tech sectors such as EVs, solar cells, and semiconductors, threatens India’s efforts to boost its manufacturing capabilities.
• Global Supply Chain Shifts:China’s dominance in sectors such as solar equipment &electronics has made many countries heavily reliant on its exports. This, combined with China’s ongoing industrial policies to stimulate exports amid weak domestic demand, is causing disruptions in global supply chains, particularly in renewable energy &steel industries.
• Decline in Domestic Steel Industry: India’s steel industry has been particularly vulnerable to the influx of cheap Chinese steel. Despite government interventions, such as anti-dumping investigations, domestic steel producers continue to face intense competition.
• Widening Trade Deficit: India’s trade deficit with China has grown significantly, with imports from China rising by nearly 60% from $70 billion in FY19 to $101 billion in FY24.

Policy Measures India Should Adopt

• Promote Domestic Manufacturing and Supply Chain Independence: Expanding the Production-Linked Incentive (PLI) scheme to include more high-tech sectors like EVs, solar cells, and semiconductors can help reduce reliance on Chinese imports.
• Diversification of Import Sources: India should reduce its over-dependence on Chinese imports by strengthening trade relations with other countries such as Japan, South Korea, and ASEAN members.
• Boosting Renewable Energy Self-Reliance:India must prioritize building domestic manufacturing capabilities in the renewable energy sector. Strategic investments in domestic solar cell and module production, along with incentives for clean energy startups, can help India achieve its 2030 targets while reducing reliance on Chinese imports.
• Support for the Steel Industry:To protect the domestic steel sector, India should impose stricter anti-dumping duties on Chinese steel imports while promoting value-added steel production domestically.

Conclusion

Focusing on long-term industrial policies and fostering self-reliance will enable India to tackle the challenges arising from China’s renewed export push while strengthening its position in global trade.