Global trade isn’t about efficiency any more — it’s a geopolitical battlefield

Bill Clinton won the 1992 US presidential election, putting together a winning campaign that took him from the relative obscurity of the governorship of a small southern state of Arkansas to the mightiest office in the land. Besides a triumph of charisma, it was also due to the laser-like focus on the economy that won over the voters on the back of a catchphrase over concerns on a country in recession. ‘It’s the economy, stupid’, coined by Clinton’s chief political strategist James Carville, was the magic phrase. 

Cut to the present. What do the following three seemingly disparate, unconnected developments have in common?

• The ‘China Plus One’  strategy of US and western businesses to diversify supply chains beyond China to reduce dependence and hedge the risk of an over-reliance on the Asian giant for their products;

• A Bloomberg report quietly drawing attention to the recall of 300 Chinese engineers from Foxconn’s Apple iPhone manufacturing unit in Sriperumbudur, near Chennai, close to where Rajiv Gandhi was assassinated by a Tamil Tiger suicide bomber in 1991;

• Prime Minister Narendra Modi’s stopovers in Africa and the Caribbean on the way to the BRICS [the non-Western grouping of Brazil, Russia, India, China and South Africa, meant to challenge Western multilateral associations]. 

The answer lies in the invisible wires of geopolitics.

With its abundant labour and growing technical and business expertise, India is one of the favoured destinations in finding an alternative to China (Vietnam being another). Leading the way are companies like Apple, which has invested in India in a big way.

India already makes about 20 per cent of all Apple phones, 97 per cent of which is exclusively for the US market through its contract manufacturing deal with the Taiwan multinational Foxconn — which has major assembly lines in Sriperumbudur (iPhones) and Hyderabad (AirPods).

The Tatas also make Apple phones under licence in India. 

This strategic shift away from China does two things: it mitigates the risk of a supply shock from China and also helps deflect possible problems if Trump’s tariff war with China escalates.

For India, which is chuffed about its production-linked incentives (PLI) scheme, the diversification fits in well with it actively seeking foreign investment. To give an idea of the scale of Apple’s ramped-up production in India: IT and electronics minister Ashwini Vaishnaw said recently that India exported $17.4 billion worth of iPhones over 12 months, in the fiscal year that ended March 2025. 

Beijing is fully cognisant of these realities: the so-called recall of Chinese engineers to China by Foxconn is actually the Taiwanese contract manufacturer acting on orders from Beijing. Foxconn makes the bulk of its iPhones in vast factories in China, in and around Shenzen, which are part of an intricately connected product and input chain in that country, and is therefore susceptible to pressure from Beijing. 

China is not going to let India build up its manufacturing muscle at its expense. The pulling out of Chinese engineers is a bid to slow down the acquisition of the necessary expertise in state-of-the-art assembly mechanisms, especially with the iPhone 17 due for launch. The engineers are key cogs in the Foxconn plants, where they perform critical functions, one of which is training Indian technicians.

In recent months, China has ordered its own companies and its bureaucrats to halt the export of machines, technology and engineering expertise abroad to slowdown the implementation of the China Plus One strategy. They have curbed the export of rare earth magnets, a crucial component of electric vehicles, and are also cracking down on APIs (active pharmaceutical ingredients) critical for modern medicines and drugs — for instance, paracetamol — especially generic drugs; China is an API powerhouse and India is a beneficiary of these in making low cost generic medicines.

Into this cocktail, we need to add another ingredient: the ongoing Indo–China border tensions and the simmering dispute with Pakistan.

India’s closeness to the US and the perception that New Delhi is willing to play into America’s hands only makes a bad situation worse.

It is in this light that the exodus of Chinese engineers from Foxconn has to be seen.

New Delhi has put up a brave face and has said that we are ready to take up the challenge; but it is not going to be easy, as an India Today report highlighted — not when it involves assembling high-tech phones with a 1,000-plus components to be put together with microscopic precision.

There is not much India can do in the given situation. It has little scope to retaliate. It should be noted that China is India’s leading trade partner—$100 billion in imports in fiscal year 2024, according to our commerce ministry. The Indian market is flooded with Chinese goods ranging from high end phones and drones to cheap toys and trinkets. 

Modi’s travel stops in Africa and the Caribbean on the way to Argentina — boasting huge reserves of lithium and hydrocarbons make sense when we consider the following: Ghana’s lithium reserves, Namibia’s uranium deposits and Trinidad and Tobago’s oil and gas.

Flag follows trade, runs the old adage. Here, however, trade leads the way.

To paraphrase Carville’s immortal line: It’s the geopolitics, stupid.