US
– China Trade War: What’s in it for India?
One of the main Presidential
Elections agenda for Donald Trump in 2016 was to bring back more jobs to
America and for doing so he would introduce strict measures on countries with
high trade deficits with the US, mainly hinting on China. And with almost two
years of his term over, Donald Trump has taken it too aggressively in the
calendar year 2018.
The year began with the US
imposing tariffs on Solar Panels, Washing Machines and other small electronic
goods which formed a major chunk of Chinese imports to the US. Further in March
2018, President Trump asked the United States Trade Representative to
investigate and apply traffic on goods worth 50-60 Billion USD. As a
retaliation China too imposed tariffs on US Imports to China, which mainly
includes automotive parts, weapons and food products. As a result of this
retaliation Trump announced another round of tariff on goods worth 60 Billion
USD in May 2018 and also planned to keep a check on investments. With this
announcement, a full blown trade war began between the two global giants with
US announcing tariffs on goods worth 250 Billion USD (source)
and China announcing the same on goods worth 110 Billion USD till September
end.
The question that comes to mind
is that ‘Is it fair enough from the end of the United States to go into a
full-fledged trade war with China at a point where the global GDP growth rate
is already slowing down. However when one realized the trade deficit between
the two countries and their government bond holders, it becomes very clear if
US needs to do so.
With
a trade deficit of 380 Billion USD it is very clear that US needed to take measures.
The
ongoing trade war is being seen as a full blown war by various analysts who
predict that this may slow down the global GDP growth rate by around 0.5%.
However the point here to be noted is that if it will be a curse for all or if
it may be a blessing in disguise. For instance, with Apple getting a major hit
due to the sanction of tariffs in for import from China is planning to shift
its base to Vietnam, which may boost the economy of Vietnam. In near future,
many manufacturing units from China may move to nearby countries with low cost
production capacity which may boost their economy.
Now
the main concern for us is ‘What is in it for India’. The main point here to be
noted is that the trade war may not only restrict to these major giants but the
ripples of it will be felt by most of the countries, including India as in its
current form the global economy is still in a way bipolar in nature, though
moving towards a multi-polar setup. The tariff imposition will increase out
import cost resulting in increased prices, pushing the inflation which so far
seemed to be manageable. The rupee value may further degrade on this account. Also
in case that case, government may not achieve its fiscal deficit target. Further
the sentiments of investors will decline globally resulting in lower
investments with many already looking cautious, which is already evident with
downward trend of the bull in recent past.
However, for being a more of an
internal market demand based economy and just by being a silent spectator as on
date, India can see a lot of potentials due to the void that this trade war has
created. For instance, as a result of this war, China may reduce its crude
import from US and may look for alternatives. As a result, crude oil prices may
fall globally which is a good news for India as it might lower its burden on
Imports. Thought oil bills might reduce, investor sentiments might get weaker
too squaring off the benefits. With our Exim
component standing at around 40% of our GDP, it is hard to predict regarding
the case. Also due to the voids so created in US imports, Indian manufacturing
sector may explore ways to fill the gaps so created.
One of the major advantage that
India may see is the softening of the Chinese stand as it will be the bigger
looser of the Trade War with US, being an export dependent economy. With most
of its industries being hit, it may look towards its neighbor India and other
south Asian countries for help. The situation may help India negotiate better.
Also India may seek a resolution of OBOR and entry into Nuclear Supplier’s
Group. With its relations with the smaller neighbors souring in recent past,
this comes as an opportunity as the bear will be weaker than before.
There is no doubt that economic growth of all
involved, directly or indirectly, will be hurt across the globe, but the
intelligent will be the one who is hurt the least and still grabs the new
opportunities, in economic or geopolitical scenario, better through the tricky waters.
