By Subrata Majumder
Caught in the crossfire between Japan’s submission to Trump’s tariff war linking with investment and incentivizing Japanese investors to quite China , India is opened with a new opportunity to combat Trump’s threat of tariff war, which is linked with scrapping of oil and defence deal with Russia.
USA slapped lower tariff of 15 percent on Japan against 25 percent on April 2, 2025. But it linked with Japan’s commitment to invest US $ 550 billion in USA, reiterating retaining 90 percent profit non-remittable to Japan. This is in spite of the fact that Japan is the biggest investor in USA. The moot point is to counterbalance Japan’s reaping bigger wealth from USA through investment and exports to USA.
Owing to scarce natural resources and landed area, Japan has always been dependent upon foreign resources to bolster its industrial development and economic growth. Eventually, Japan’s prowess relies on external economy, embracing exports and imports. Exports of goods and services accounted for 21.8 percent of GDP in 2023 and import accounted for 23.5 percent in the same year.
What made Trump raged despite Japan emerged the biggest foreign investor in USA creating a vast pool for American employment opportunities, was wide trade deficit. Japan is the fourth biggest nation, yielding trade deficit with USA.
As regards China, Japan provided incentive to Japanese investors to shift from China to nix COVID pandemic. This augured well for India to capitalize China+1 strategy. Japanese government allocated 23.5 billion Yen (US$ 2 billion) in 2020, as subsidy to encourage Japanese companies to disperse their manufacturing sites across the Asian region.
Eventually, India emerged a major beneficiary. It became second biggest destination for Japanese investment in Asia, leaving behind China and ASEAN (except Singapore) in 2023 and 2024.
Portraying Shinzo Abe’s legacy for re-vitalization of India – Japan relation vis-à-vis combating China’s prowess, Japanese investment made a sharp downturn in China, with simultaneous growth in investment in India. Japanese investment in China fell from US$ 11,024 million in 2020 to US$ 3,305 million in 2024, against five times increase in investment in India from US$ 1,570 million in 2020 to US$5,341 million in 2024.
Given the strategic shift from China, owing to Japanese government subsidy and Trump’s anti-China trade war since his first term, India vied for a better alternative for supply chain manufacture. India gained a momentum growth in its electronic and electrical industries due to its policy dynamism to boost these sectors.
Launching of PLI scheme (Productivity Linked Incentive) is a case in point. It catapult investment and growth in these sectors. Electronic sector pinned for a galloping growth in India. Production reached US$101 billion in 2023-24, from a mere US$48 billion in 2017-18.
Till now India does not have manufacturing facilities for semiconductor devices. Recently, three companies have decided to manufacture semiconductor devices in India. One of them is a Japanese investor. It is Renesas Electronics, Japan, in partnership with Star Microtech, Thailand. Others are Tata Electronics Pvt Ltd, in partnership with Powerchip Semiconductor Manufacturing Corporation, Thailand (PSMC). These will lead India to penetrate in the global markets for electronic and electrical industries, vying challenge to China and Vietnam.
USA emerged as the biggest destination for India’s exports of electronics and electrical goods. Nearly one third of India’s export of electronic goods (32.0 percent) and one sixth of export of electrical goods (16.4 percent) went to USA in 2024-25. These demonstrate India’s growing challenge to China and Vietnam.
Apple’s shift to India is a case in point. According to CEO of Apple, Tim Cook, India has overtaken China in assembling iPhone for US market. He said that most iPhone sold in US market during last quarter (April –June 2025) were made in India.
Besides, Trump’s high tariff on China and high transshipment tariff on Vietnam have ripen new opportunities for India to be resilient to Trump’s erratic tariff hike. The recent thought on policy change on China’s investment is precursor to rejig India as an important alternative to China in supply chain. India’s Finance Minister Nirmala Sitharaman argued that New Delhi should focus on Chinese investment in India, while presenting fiscal year budget
At present, Chinese investment in India is restricted due to security concern. It is not permitted through Automatic Approval system.
Chinese investment has dual role to support India’s growth. Besides development of supply chain at low cost manufacturing, it can bore well for increasing Japanese investment in India.
The unique practice of Japanese investment abroad is to prepare its supply chain through its vendor systems. They provide financial as well as technical support to their vendors. In India, Maruti-Suzuki predominance in automobile industry and key role in vendor system is a case in point.
Given a larger presence of Japanese investment in China to counter-balance Yen appreciation, stemmed from Plaza Agreement and to procure low cost supply chain, Japanese investors developed Chinese supply chain manufacturing facilities , pouring both financial stake and technology transfer.
Against this backdrop, restriction on Chinese investment in India led a collateral damage on Japanese investment in India. They become futile without the presence of their Chinese partners for supply chain in the country.
Given this trajectory of Japan – China relation in the development of manufacturing workshop for supply chain, opening of Chinese investment in India is imperative. (IPA Service)
