US-India tech deal could further detach China from global supply chain

A new partnership between the US and India – targeting semiconductors, artificial intelligence and telecommunications, among other areas – could accelerate the realignment of global supply chains at the expense of China’s interests, according to analysts.

Details of the US-India Initiative on Critical and Emerging Technologies (iCET), published last Tuesday, also include planned cooperation in quantum computing and defence.

While China is not mentioned in the document, the agreement between Washington and New Delhi is seen as part of US efforts to limit the role of the world’s second-largest economy in global supply chains.

The collaboration has touched a nerve in Beijing, where officials have shown growing concerns over a push by the US towards economic and technological decoupling with China.

Since last week, the People’s Daily has published three opinion pieces written by Zhong Sheng, a pen name representing the official position of the Chinese Communist Party’s mouthpiece, accusing the US of exerting its influence over allies to create cliques to hinder China’s development. The articles did not directly mention India.

Washington’s intention to work closer in the economic and technological fronts with India, which has by some estimates already replaced China as the world’s most populous country, stands in sharp contrast to its mistrust of China.

While the US has made steps to contain China’s semiconductor advancement to protect national security, it has pledged to support the “development of a semiconductor design, manufacturing, and fabrication ecosystem in India” and to help the South Asian nation develop a “skilled workforce” to play a bigger role in the global chip industry – a development that analysts say can weaken China’s standing.

By “roping in India”, the US can promote the initiative as part of “friend-shoring” and make its ally a “supply chain alternative to China”, Chinese nationalist tabloid Global Times quoted Liu Zongyi, a researcher at the Shanghai Institutes for International Studies, as saying in an opinion piece last Wednesday.

India has already emerged as a major beneficiary of a supply chain realignment that has seen companies shifting production out of China amid rigid pandemic control measures and intensifying US-China tensions.

In a recent research note on India’s outlook in 2023, Goldman Sachs analysts called the country “a potentially attractive consumer market over the long term” and a good alternative for Western investment in light of geopolitical risks.

India is expected to account for between 45 to 50 per cent of Apple’s iPhone production by 2027, compared with less than 10 per cent last year, according to Taiwanese research firm DigiTimes.

“[The iCET] would be a win-win situation for both countries: the US will get a reliable partner for manufacturing and supply chain, and India an associate to support in necessary resources,” said Faisal Kawoosa, chief analyst at New Delhi-based market consultancy Techarc.
For now, however, the US-India partnership exists largely on paper.

“At this point, the benefits are more potential than real,” said Michael Kugelman, deputy director of Asia Programme and senior associate for South Asia at the Wilson Centre, a non-partisan think tank based in Washington.

“In principle, iCET could help bring India the products and expertise needed to strengthen its tech sector, including its semiconductor industry … but bureaucracies in both countries can be oppressive.” South China Morning Post