The law is facing criticism that it could discourage innovation before it even happens. But the European Commission didn’t pass it overnight. In fact, the law was first proposed back in 2020.
“It’s been drafted for the past few years and ChatGPT happened in the meantime,” Aleksandra Przegalinska, a senior research associate at Harvard University, told Straight Arrow News in July 2023.
After tweaks to adjust to the ever-changing generative AI reality, the commission passed the law in May of this year.
“It’s a regulation that looks at AI from the perspective of risk, mainly,” Przegalinska explained. “It says, okay, most of the applications of artificial intelligence that we have seen so far, we could call them minimal risk; but there are others that are high risk and there is also a way of using artificial intelligence that we would rather ban; like social scoring, for instance, or surveillance systems of different kinds.”
Last year during the State of the EU address, European Commission President Ursula von der Leyen spoke about the need to quickly regulate AI.
“AI is a general technology that is accessible, powerful and adaptable for a vast range of uses — both civilian and military,” von der Leyen said in September. “And it is moving faster than even its developers anticipated. So we have a narrowing window of opportunity to guide this technology responsibly.”
The AI Act separates types of technology into four different categories:
Prohibited AIsystems will be banned as of February 2025. This could apply to AI which tries to predict whether a person might commit a crime based on their characteristics or one that scrapes the internet to bolster facial recognition systems.
High risk AI systems have the highest regulatory burden outside of those that are outright banned. This includes AI that is used for critical infrastructure like electrical grids, systems that make employment decisions, and self-driving vehicles. Companies with AI that fall into this category will have to disclose their training datasets and prove human oversight.
Minimal risk systems make up the largest chunk of innovation at about 85%. This is what’s known as “general-use AI.” The category includes generative AI like OpenAI’s ChatGPT or Google’s Gemini. For these types of AI, creators will need to make sure their models are adhering to EU copyright rules and take proper cybersecurity precautions to protect users. It will take effect in 12 months.
The fourth category is no risk. This is pretty self-explanatory and is for any AI use that doesn’t fall into the other three categories.
“We Europeans have always championed an approach that puts people and their rights at the center of everything we do,” von der Leyen said in a video posted to X. “So with our Artificial Intelligence Act, we create new guardrails not only to protect people and their interests but also to give business and innovators clear rules and certainty.”
In recent years, Microsoft, Google, Amazon, Apple and Facebook-parent Meta have spent massive amounts of money developing AI models.
The rules will be governed by the European Commission’s AI office. A spokesperson for the commission said they will staff around 140 people.
If a company fails to comply with the new rules, it could face fines of $41 million or up to 7% of its global revenue. And the regulatory environment could force these tech giants to make a big decision.
Meta already announced it wouldn’t make its Llama AI model available in the EU. But that’s not because of the AI Act; it was already worried about the bloc’s General Data Protection regulation.
Member states have until August of 2025 to put together bodies that will handle execution of the law in their country.
The agreement, pending ratification by the store’s 85 workers, includes scheduling improvements, a 10% pay raise over three years, job protection measures and severance guarantees. A vote is set for Aug. 6.
This milestone comes as similar union efforts at companies like Starbucks and Amazon have not yet secured contracts. Negotiating a first contract can be prolonged, with Bloomberg Law noting an average duration of 465 days, and some unions taking over two years, according to a 2023 study.
The deal could influence future unionization efforts at other Apple stores across the U.S., where only one other store, in Oklahoma City, has voted to unionize. Apple, which owns about 270 stores nationwide, has not commented on the agreement beyond expressing pride in their team’s compensation and benefits.
Israel says Hezbollah will ‘pay the price’ after deadly attack on soccer field
Israel vowed Hezbollah will “pay the price” after the deadliest strike on Israeli territory since Oct. 7 killed 12 children. And former President Donald Trump and Vice President Kamala Harris continue on the campaign trail with less than 100 days to go until Election Day. These stories and more highlight The Morning Rundown for Monday, July 29, 2024.
Israel: Hezbollah will ‘pay the price’ after deadly attack on soccer field
Tensions are escalating in the Middle East after a deadly assault on Israel on Saturday, July 27. Israeli officials said a Hezbollah rocket launched from Lebanon struck a soccer field in the Israel-occupied Golan Heights, killing 12 children.
It marked the deadliest attack on Israeli soil since Hamas’ Oct. 7 terror attack. Hezbollah has denied it was behind the strike.
Now, attention turns to how Israel will respond to the threat and if the war is on the brink of expansion.
Thousands of people attended funeral services for the children who died in Saturday’s attack. Their caskets were hauled through the streets as people paid their respects.
Israel’s Defense Minister Yoav Gallant said Hezbollah “will pay the price” for the latest attack.
It’s an escalation in a series of back and forth between Hezbollah and Israel. The Iran-backed militant group has been firing rockets at Israel from Lebanon since the start of the Israel-Hamas war. Israel has been retaliating, striking their targets in Lebanon and killing top Hezbollah and Hamas leadership in the region, but this latest hit against Israel could create a larger response.
Lebanon’s Foreign Minister Abdallah Bou Habib said the country will not get involved in a war but will stand behind Hezbollah. The foreign minister said Lebanon has received reassurances from the U.S. and France that Israel’s response will be “limited.”
The Biden administration has warned Israel of how its next steps could lead to a larger conflict and is warning against them hitting Hezbollah targets in Lebanon’s capital of Beirut. International flights into Beirut are being canceled out of fears of escalation.
Harris, Trump look to rally support less than 100 days until election day
With less than 100 days left until the 2024 presidential election, both Vice President Kamala Harris and former President Donald Trump spent the weekend speaking to their supporters at campaign events. Harris spoke to voters in Massachusetts and Trump held events in Florida.
“She was a bum,” Trump told his supporters in West Palm Beach on Friday, July 26. “Three weeks ago, she was a bum, a failed vice president in a failed administration with millions of people crossing when she was the border czar.”
Harris promised supporters her “underdog” campaign would prevail.
“Donald Trump has been resorting to some wild lies about my record,” she said on Saturday, July 27. “And some of what he and his running mate are saying, it’s just plain weird.”
New polling from ABC News shows support for Harris is growing among independent voters. Forty-four percent have a favorable view of Harris — up from 28% from only a week ago — as she tries to rally Democratic Party support before officially becoming the nominee.
On July 30 and Aug 1., Harris will hold campaign events in Georgia and Texas, respectively. Trump will head back to Pennsylvania for the first time since surviving an assassination attempt at a rally in the state on July 13.
Mark Meadows asks SCOTUS to intervene in Georgia election interference case
Mark Meadows, the former White House chief of staff during the Trump administration, is turning to the Supreme Court to intervene in the Georgia election interference case against him. Meadows’ lawyers have asked the justices to take up his bid to move the case to federal court.
In their filing on Friday, July 26, Meadows’ legal team argued his actions are entitled to immunity from prosecution citing the high court’s recent ruling that gave former President Trump immunity for official acts as president.
Meadows has pleaded not guilty to the charges. The case, however, remains on hold as Meadows and other co-defendants — including former President Trump — challenge a ruling that allows Fulton County District Attorney Fani Willis to continue prosecuting the case amid claims of improper conduct.
Maduro and opposition both claim to win Venezuela’s presidential election
In a highly watched and highly scrutinized electoral process, Venezuela’s authoritarian President Nicolás Maduro claimed to have won the presidential election on Monday, July 29. However, his political opponents have too.
With 80% of votes counted, Maduro is said to have won with more than 51% of the vote, leading electoral authorities to declare him the winner.
However, the opposition claims candidate Edmundo González had received 70% of the vote against Maduro’s 30% and González said all rules were violated. The opposition is demanding electoral authorities present all the voting tallies issued by the voting machines to verify the results.
The United States and multiple regional nations have also voiced skepticism about official results handing victory to Maduro.
The man accused of starting what is now the largest active wildfire in the country is set to appear in a California court on Monday, July 29. The fast-spreading fire near Chico has burned more than 350,000 acres in three days, forcing thousands of people in four counties to leave their homes.
The Park Fire had scorched an area greater than the size of Los Angeles as of Sunday, July 28, causing poor air quality in a large part of the northwestern U.S. and western Canada.
Cooler temperatures and more humidity over the weekend helped firefighters make some progress. They say the fire is now 12% contained.
Apple reaches first-ever union deal with Maryland employees
Apple has reached its first-ever union contract with employees at a Maryland store. The union representing the employees of a store in a Baltimore suburb said it’s reached a tentative three-year deal with Apple to increase pay by an average of 10% and offer other benefits to workers.
The tentative agreement still has to be approved by the store’s 85 workers. A vote is set for Aug. 6.
Team USA wins most medals in Olympics opening weekend
Team USA is off to a strong start at the Paris Olympics, picking up 12 medals over the weekend. That’s the most of any country so far in the games.
USA athletes had won gold three times as of Monday, July 29 morning, including the men’s 4x100m freestyle relay team, giving Caleb Dressel his eighth gold medal. Torri Huske won the women’s 100m butterfly and Gretchen Walsh took silver, with just four hundredths of a second separating the American athletes.
Lee Kiefer brought home gold in fencing. In gymnastics, Simone Biles made her Olympics return, leading the U.S. Women’s Team into the finals despite suffering a minor calf injury.
On the basketball court, LeBron James led Team USA to victory in their first game, defeating Serbia 110 to 84.
Demand for VPNs in Russia surged after the government restricted access to Western services following President Vladimir Putin’s military actions in Ukraine in 2022. VPNs, or Virtual Private Networks, allow users to bypass censorship and access restricted content by routing connections through servers outside of Russia.
The removed apps include popular services like Le VPN, Red Shield VPN, and AdGuard VPN. Representatives from these companies said they received notifications from Apple, stating the removal was due to the inclusion of content illegal in Russia. Vladislav Zdolnikov, CEO and founder of Red Shield VPN, confirmed the apps were in violation of specific Russian laws.
In the U.S., using VPNs is legal and common for enhancing security on public Wi-Fi networks, protecting privacy from surveillance, and accessing geo-restricted content. This contrasts sharply with Russia, where VPN use is heavily restricted and monitored.
The Russian government requires VPNs to connect to a database of banned websites, leading to the blockage of non-compliant VPNs. This is part of a broader strategy to control information flow and suppress dissent, especially concerning actions like the Ukraine invasion.
Apple’s action highlights the broader measures by the Russian government to control the narrative within its borders amid heightened political and military tensions. Russia has a history of monitoring and controlling internet access, including the 2016 “Yarovaya Law,” which mandates internet service providers to store users’ communications data for years and provide access to security agencies.
While Apple halted hardware sales and certain services in Russia following the Ukraine invasion, the company has kept the App Store open.
Meta accused of breaking European Union’s new digital rules
European Union (EU) regulators accused Facebook and Instagram parent company Meta of violating the new Digital Markets Act. On Monday, July 1, the EU said Meta forced users to choose between seeing ads or paying to avoid them.
Meta started the “pay or consent” option for European users in November after the EU’s top court ruled Meta had to get consent to show ads to users.
The European Commission — the EU’s executive arm — said preliminary findings of its investigation show Meta’s “pay or consent” model breaches the Digital Markets Act. The commission had opened the investigation not long after the Digital Markets Act went into effect in March.
If EU regulators find Meta did break the rules, the company could face a fine of up to 10% of its worldwide revenue.
This makes Meta the second company to be hit with charges under the new Digital Markets Act. Last week, the EU accused Apple of failing to comply with the law. Regulators said Apple prevented app developers from pointing users to cheaper options than Apple’s app store.
Biden, Trump campaigns mark 2nd anniversary of Roe v. Wade being overturned
The Biden and Trump campaigns are marking the two-year anniversary of the Supreme Court overturning Roe v. Wade. And more than one thousand people are dead while making the Hajj pilgrimage in Saudi Arabia amid dangerous high temperatures. These stories and more highlight The Morning Rundown for Monday, June 24, 2024.
Biden, Trump campaigns mark 2nd anniversary of Roe v. Wade being overturned
Monday, June 24, marks the second anniversary of the Supreme Court overturning the Roe v. Wade decision, ending the constitutional legal right to an abortion. Since that ruling, many states have taken a stance on the issue.
More than 20 states have restricted abortions while over 20 others have expanded access to abortion.
Now, just days away from the first presidential debate between President Joe Biden and former President Donald Trump, both campaigns are making clear where they stand on the matter.
The Biden campaign is hosting more than 50 events to mark the second anniversary of the Dobbs decision, where the president and his supporters will speak out against the court’s ruling.
Vice President Kamala Harris is expected to participate in two campaign events Monday — one in Arizona and one in Maryland — while second gentleman Doug Emhoff will be part of a rally in Michigan.
Harris has been on the road since January on her “Fight for Reproductive Freedoms” tour in response to the high court’s ruling.
The campaign said the vice president on Monday, June 24, will “remind voters that Donald Trump is responsible for overturning Roe and the chaos that has followed.”
In an interview that on MSNBC, Harris spoke about freedom.
“Every person of whatever gender should understand that, if such a fundamental freedom such as the right to make decisions about your own body can be taken, be aware of what other freedoms may be at stake,” the vice president said.
Former President Trump, meanwhile, spoke on the topic during his keynote address at the Faith and Freedom Coalition’s conference in Washington on June 22. He thanked his nominees to the Supreme Court for showing “wisdom” and “courage” on their decision two years ago.
Trump reiterated his stance that the issue should be left for the states to decide.
“And we did something that was amazing,” Trump said. “The big problem was it was caught up in the federal government. But the people will decide and that’s the way it should be. The people are now deciding, and some states are a little bit more conservative, and some states are much more liberal.”
Also Monday, a three-day hearing continues in Florida as the federal judge presiding over Trump’s classified documents case will hear arguments on whether the former president should be barred from making public comments that prosecutors say pose a threat to FBI agents working the investigation.
Netanyahu says “intense fighting” in Gaza will soon end
Israeli Prime Minister Benjamin Netanyahu says “intense fighting” in Gaza could soon come to an end, but the war is far from over. In his first interview with Israeli media since the war with Hamas started on Oct. 7, Netanyahu said Sunday, June 23, he’s ready to make “a partial deal” with Hamas to return some hostages still being held captive in Gaza, but the war will not be over until Hamas is eliminated.
He also said that once the intense fighting in Gaza winds down, Israel will be able to focus more on its northern border with Lebanon, where fighting with the Iran-backed group Hezbollah is escalating.
Netanyahu’s interview came just as eight people were killed Sunday in an Israeli airstrike on a “training college” in Gaza City being used to distribute aid. It was formerly the headquarters for a United Nations agency.
The Israeli military said the site has been used by Hamas and Islamic jihad militants and precautionary measures were taken before the strike to reduce the risk of harming civilians.
Meanwhile, Israeli Defense Minister Yoav Gallant arrived in Washington Sunday, June 23, for meetings with officials as Netanyahu appeared to double down on recent claims the U.S. is withholding weapons meant to be delivered to Israel.
“Since the beginning of the war, the U.S. has supplied us with very important support both in spirit and materially, with defensive and offensive means,” Netanyahu said. “But since about four months ago, there has been a dramatic decline in arms supplies from the U.S. to Israel. Over long weeks we have turned to our American friends with a request to speed up deliveries. We did it time and again, we did it with higher officials and other ranking officials and I would like to emphasize — we did it behind closed doors. We got various explanations but one thing we did not get: the basic state of affairs did not change. Some items came dripping in, but the great mass of arms was left behind.”
The Biden administration has denied Netanyahu’s claims.
In May, the administration did pause a shipment of bombs over concerns about their impact if used in densely populated areas of Gaza, but Israel was still due to get billions of dollars’ worth of U.S. weaponry.
At least 19 killed in attacks on places of worship in Russia
A synagogue, an Orthodox church and police checkpoints were targeted by gunmen in a coordinated series of attacks in Russia’s southernmost Dagestan province on Sunday night. At least 15 police officers were killed, as well as four civilians, including an Orthodox priest.
Local officials said at least six “militants” were also killed following the attacks.
No group has claimed responsibility for the attacks yet, but they come three months after an ISIS affiliate said it carried out an attack at a music hall in Moscow that left more than 140 people dead.
Meanwhile, Russia is blaming the U.S. for a deadly Ukrainian strike on a strategic port in occupied Crimea on Sunday. The strike left at least four people dead and more than 150 injured in one of the biggest attacks on the Russian-annexed peninsula in recent months.
Russian officials say Ukraine used weapons provided by the U.S. to carry out the strike.
Russia annexed Crimea in 2014 and considers it part of the country, though it remains internationally recognized as Ukrainian territory.
1,300 people die during Hajj pilgrimage amid high temps
People are experiencing extreme weather across the globe — including dangerous heat, which is taking a major toll in the Middle East at a time millions are visiting for a sacred religious journey for Muslims known as “Hajj pilgrimage.” More than 1,000 people have died during this year’s pilgrimage to Mecca in Saudi Arabia as temperatures reached 120 degrees.
Saudi officials said 83% of those who died were “unauthorized pilgrims” who walked long distances without adequate shelter. Egypt revoked the licenses of 16 travel agencies accused of helping the unauthorized visitors.
Among the 1.8 million people who were authorized was a couple from Maryland, who reportedly died on the journey from heat stroke. Their daughter told CNN her parents had saved up their life savings to make the pilgrimage.
In the U.S., a heat dome is impacting 100 million people across 27 states — with high temperature alerts from Los Angeles to New York City.
Washington D.C. and Baltimore hit the 100-degree mark this past weekend for the first time in over a decade.
Meanwhile, severe flooding from heavy rainfall is the concern in the upper Midwest, with Iowa Gov. Kim Reynolds, R, declaring a disaster emergency for over 20 counties. More than 300 water rescues have been reported and nearly 2,000 properties damaged. Reynolds said “the devastation is severe and widespread.”
South Dakota Gov. Kristi Noem, R, also declared a statewide emergency and confirmed one person was killed in the floods. Noem said the worst of the flooding is expected to come Monday, June 24, and Tuesday, June 25.
Apple first company accused of breaking new European tech law
European Union regulators are accusing Apple of breaking new rules on digital competition by preventing app developers from pointing users to cheaper options than Apple’s app store. The European Commission said preliminary findings of its investigation show Apple breached the Digital Markets Act (DMA) — a law passed in 2022 that took effect in March.
Apple is the first company to be charged for violating the DMA.
Apple now has a chance to respond to the findings, which the commission will assess. It must make a final decision on Apple’s compliance by March 2025.
Apple could face fines worth up to 10% of its global revenue.
Climate activists spray smoke, powder at PGA tournament
Climate activists previously spray painted Taylor Swift’s private jets and Stonehenge to protest the use of fossil fuels. Now, another group of protesters set out to get their message heard by disrupting a golf tournament.
Climate activists stormed the 18th green at the PGA Tour’s Traveler Championship in Connecticut on Sunday.
Apple unveils its AI strategy, partnership with OpenAI
Apple held its annual Worldwide Developers Conference on Monday, June 10, where it announced new upgrades to its devices and operating systems. But what’s getting the most attention is Apple Intelligence, the tech company’s new strategy for incorporating artificial intelligence into its business model.
“Recent developments in generative intelligence and large language models offer powerful capabilities that provide the opportunity to take the experience of using Apple products to new heights,” CEO Tim Cook said. “So, as we look to build in these incredible new capabilities, we want to ensure that the outcome reflects the principles at the core of our products.”
Among its capabilities, Apple Intelligence will see an update to the voice assistant Siri. Apple said Siri will now better understand people’s questions and, like with other chatbots, people will also be able to type to Siri.
Apple also announced a partnership with OpenAI, saying if Siri doesn’t know the answer to something, it will ask if it can take a person’s question to ChatGPT.
New writing tools will see Apple Intelligence proofread, rewrite and summarize text across various apps, as well as suggest the right tone for the message.
Apple said you will also be able to create your own custom emojis just by describing what you are looking for. They’re calling these “genmojis.”
Apple Intelligence is set to launch in the fall.
Reports: Apple to unveil AI upgrades at conference
One of Apple’s biggest events of the year kicks off Monday, June 10, in Cupertino, California. According to reports, the Worldwide Developers Conference will see Apple showcasing its advancements in artificial intelligence — which the tech company has reportedly dubbed “Apple Intelligence.”
“We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era, including Apple’s unique combination of seamless hardware, software and services integration; groundbreaking Apple silicon with our industry-leading neural engine; and our unwavering focus on privacy,” Tim Cook, CEO of Apple, said in May.
Apple is also slated to debut its latest operating systems for its devices. CEO Tim Cook is scheduled to deliver the keynote address.
Apple’s newest ad is pushing the wrong buttons for many social media users
Apple’s latest ad faced swift backlash on social media. In a bid to promote its new ultra-thin iPads, the tech giant debuted a spot featuring an industrial press crushing creative products on Tuesday, May 7. The ad suggests that the tasks performed by these objects can now be achieved by the new iPad.
While Apple CEO Tim Cook touted the ad’s creativity, it did not sit well with many on social media. Critics took to X, formerly Twitter, criticizing the commercial for being “destructive” and “out of touch.”
Reactions varied. Some users called for the ad to be pulled and re-edited. Others like Adam Singer, vice president of marketing at AdQuick, called it a “perfect metaphor for today’s creative dark age.”
This ad is (unintentional) perfect metaphor for today's creative dark age: compress organic instruments, joyful/imperfect machines, tangible art, our entire physical reality into a soulless, postmodern, read-only device a multi-trillion $ corporation controls what you do with https://t.co/mxtfOKloYV
“Are you trying to run your company into the ground? This makes me never want to buy iProducts ever ever ever [sic] again,” Conservative columnist Quin Hillyerwrote in a critique of Apple.
“‘Crushing Obsolete Creativity.’ Is that really the message you want to pass on? Seriously?” a user displaying “#FreePalestine” next to their X logo wrote.
“Crushing obsolete creativity”
Is that really the message you want to pass on? Seriously?
— 💫T.Katsumi📢 #JusticeForAll🌍🌏🌎 (@tkatsumi06j) May 8, 2024
Even comparisons to Apple’s iconic 1984 ad emerged, with one user noting a stark contrast between the two eras: from exploding conformity to crushing vibrancy.
However, not everyone was critical. Some defended Apple, dismissing the outrage as overblown.
“Man, oh man! People will seriously complain about any little thing nowadays!! It was just a commercial,” wrote one user. “Seriously, get off your computer, or put down your phone (which is probably an iPhone…) and get outside, and take a breath… #ItsNotThatBad.”
The ad controversy comes as questions arise about the company’s direction, especially with reports of underperforming products like the Apple Vision Pro and lagging sales in the China market.
Growing pains: Will India replace China as global growth leader?
India already knocked off China as the most populous country in the world. Now, it’s going after China’s title of global growth engine, a crown that economists believe India could claim by 2028. To get there, though, the developing nation will need to address some growing pains.
“I think everyone would be making a mistake if they didn’t bet on India over the next 10 years,” said Samir Kapadia, the founder and CEO of India Index, a marketplace connecting Indian suppliers with American buyers.
The world’s fifth-largest economy is expected to soon climb over Japan and Germany to the No. 3 spot. However, that’s where it’ll settle for quite some time.
“India overtaking China in terms of size of its economy is a long way out,” said Alexandra Hermann, a lead economist at Oxford Economics.
While China’s gross domestic product is more than four times that of its neighbor, India is in a prime position to pull away business from Asia’s powerhouse.
“America is in a state of panic right now as it relates to how they can get outside of China or conduct what they call China+1,” Kapadia said. “So India is not just getting a second look; in many cases, they are getting a first look.”
So what can India do to make sure companies like what they see?
China is not going away quietly
China, the worldwide leader in economic growth over multiple decades, just beat all estimates for the first quarter of 2024, growing at a 5.3% annual pace. But the International Monetary Fund (IMF) predicts China’s growth for all of 2024 will still come in at 4.6%, dropping to 4.1% in 2025.
Meanwhile, the IMF raised India’s growth forecast to 6.8% for 2024 and another 6.5% in 2025. India grew 7.8% in 2023.
“That makes India easily the fastest-growing economy in the world,” IMF Executive Director Krishnamurthy Subramanian said.
“We have to keep in mind that India is also coming from a relatively lower base, right?” Hermann said. “The Chinese economy is still considerably larger, manifold larger than the Indian one. So it’s not really surprising that India can pull off much, much stronger growth rates than China as sort of a more emerging-market peer, let alone any advanced economies.”
According to Bloomberg Economics, China accounted for nearly a third of global growth in 2023, while India drove 17.5%. But if India keeps growing while China keeps slowing, they see that balance shift in 2028.
How India is pulling interest from China
Kapadia told Straight Arrow News that interest in India is reaching new heights.
“It’s mainly predicated on the notion that American companies can’t afford to work with China anymore,” Kapadia said.
Kapadia said tariffs on Chinese goods are giving companies pause, especially after reports that former President Donald Trump is weighing a 60% tariff on imports if elected in November. Trump confirmed his consideration on Fox Business, saying, “Maybe it’s going to be more than that.”
A ramped-up trade war with China will only expedite moves corporations are already making to diversify away from China.
“It’s not just the national security implications, the intellectual property issues, the ongoing concerns around forced labor, environmental standards, the list continues to grow,” Kapadia said.
And India, the world’s largest democracy, is making a good case to pull in business.
Take Apple as an example. CEO Tim Cook called India a “huge opportunity” after meeting with Prime Minister Narendra Modi in 2023. The same year, Apple opened its first physical store in the country and made one in every seven iPhones in India, double the amount produced there a year before.
This comes as U.S.-China relations continue to sour. Apple is getting bruised in China as officials there promote competitors instead. The company has taken such a hit in sales that Apple is no longer the world’s largest cellphone seller. Apple lost the spot to Samsung the first quarter of 2024.
Which brings up another point to India’s appeal: 1.4 billion people. When it comes to having money to spend, India’s middle class as a share of the total population is relatively small, but it’s expected to double to 61% by 2047.
“It’s a wonderful base for customers,” Kapadia said. “So doesn’t matter if you’re Tesla or you’re Lego, you’re going to look at India not as just a place to do business and get supply, you’re going to look at it as a place to sell products. And I think that’s what’s really driving a lot of attention.”
Investors polled by Bloomberg resoundingly chose India as the most compelling investment case over the next 12 months when compared with Japan and China.
India’s labor force lags
India may have more people than China, but its labor force has yet to catch up. On the one hand, more than half of India’s population is under 30 years old while China is dealing with an aging labor force. On the other hand, labor force participation is dramatically uneven. China’s is around 76% compared with India’s 51%. That’s driven largely by the lack of female labor participation in India.
“They are lower than in some of India’s Muslim neighbors and much less developed neighboring countries,” Hermann said.
According to Hermann’s research, the labor force participation rate for working-age females in India is under 25%, lower than in Pakistan and Bangladesh. China is at 71%. But Hermann said participation is just one part of the challenge.
“Because of this lack of a bigger manufacturing sector that could provide jobs for lower-skilled jobs and India having pursued a very different development story than the neighboring countries, there is just a lack of opportunity also for people to move out of agriculture and into potentially high productivity manufacturing, let alone services sector,” Hermann explained.
About half of India’s labor force works in agriculture. To grow into a meaningful alternative to China, Indian workers will need to move from farm to factory.
“I don’t think India will be able to upskill on their own,” Kapadia said. “It’s going to take foreign direct investment. It’s going to take the commitment of large multinational corporations to say, ‘Hey, we’re going to come in and we’re going to teach you how we do these things.’”
Labor reforms, other policies stall India’s progress
As a six-week election process sweeps through India, Prime Minister Narendra Modi is widely expected to secure a third five-year term when results are announced on June 4. During Modi’s decade in charge, bilateral trade between the U.S. and India has doubled to around $200 billion a year. The U.S. is now India’s largest trading partner.
For India to step into an even bigger global role, experts say it will need to ditch its protectionist attitude, where high tariffs meant to restrict imports are blocking foreign interest.
“What we do hear is that it is very difficult to set up shop in India if you can’t procure everything from within the country, which you just can’t given the relatively small manufacturing sector,” Hermann said.
Land acquisition is another challenge businesses cite, along with labor reforms. Parliament passed labor reforms in 2020 that would make hiring and firing easier. But labor union pushback has so far prevented the government from implementing those changes. Modi’s party has indicated cementing those will be a priority in a third term.
“We have seen strong reforms already over the past 10 years and it’s taken a while to start to pick up so the question is, how quickly will the more recent reforms and potentially the future reforms actually bear fruit?” Hermann said. “But overall, the signs are positive.”
There’s little doubt which direction India is trending. Wells Fargo flagged the country as having the potential to outperform its already high growth expectations this year. But the landscape still needs a lot of fertilizer to make conditions ripe for the highest output, and it’s not the only country vying for status as a China alternative.
“Vietnam has demonstrated its ability to get into electronic machinery, footwear, apparel, all plastics, all kinds of industries that India wants to be a part of but that India hasn’t really proved itself in,” Kapadia said. “If you think about the United States with the China+1 strategy, that plus one could just be Vietnam, why would it be India?”
Vietnam may have a running head start, but India’s ambitious growth target and huge consumer base are turning heads.