India emerges as key winner in supply chain shift driven by Trump tariffs and China+1 strategy, claims Nomura

US President Donald Trump’s reciprocal tariff policies, the China+1 strategy, and progress in India-US trade deal talks are resulting in supply chain shifts and trade diversion towards India, states market research firm Nomura in its latest report.

The report, titled India: An Emerging Winner from China+1, says, “There is growing anecdotal evidence of trade diversion and supply chains shifting to India due to Trump’s higher tariffs on China and competitor nations, the US goal of strategic decoupling from China, India’s brisk progress on a trade deal with the US, and its large domestic market.”

The report suggests that so far, most MNC interest is in low- and mid-tech manufacturing of smartphones, PCs, components, semiconductor assembly and testing, cotton garments, knitwear, toys, etc. It also mentions investment in the auto sector, stating that it mainly reflects foreign firms pivoting to India to tap into the growing domestic EV market, while Indian exporters see an opportunity in solar cells.

Nomura analysts Sonal Varma and Aurodeep Nandi, co-authors of the report, say trade diversion is a preferred option in the short term, as building new factories is costly and time-consuming, while trade diversion involves increasing production at existing facilities. “Over time, however, if these incentives sustain—both in the form of push factors (lower tariffs, de-risking, diversification) and pull factors (ease of doing business, domestic market size)—then firms would relocate their factories,” they say.

The three caveats highlighted by Nomura experts for India to make the best use of the opportunity are the need to complement any tariff arbitrage with earnest ease-of-doing-business reforms, reduce dependence on imported components from China for electronics and solar equipment assembly, and enforce stricter “rules of origin” to prevent rerouting of Chinese exports to the US through India.

The report agrees that it is still early days in the ongoing shift towards a new world order. What it expects is a medium-term shift in global supply chains in favour of India. “There are challenges, but we remain positive that India will emerge as one of the key winners under Trump 2.0, as a beneficiary of the next round of supply chain shifts,” the report says.