Day 87 – Q 3.How in the ongoing trade war between the US and China affecting India’s economic interests? Is India equipped enough to address the emerging challenges? Critically evaluate.

3. How in the ongoing trade war between the US and China affecting India’s economic interests? Is India equipped enough to address the emerging challenges? Critically evaluate. 

अमेरिका और चीन के बीच चल रहे व्यापार युद्ध ने भारत के आर्थिक हितों को प्रभावित कैसे किया है? क्या भारत उभरती चुनौतियों से निपटने के लिए सक्षम है? समालोचनात्मक मूल्यांकन करें।

Introduction:

A trade war is defined as an economic war between two or more countries when they try to impose extreme foreign policies so as to protect or gain more control over their own economy. Their profound motive is to reduce competition of commerce by blocking inward trade towards the home country.

China and the United States have been engaged in a trade war through increasing tariffs and other measures since 2018.

The US initiated the tariff barriers on Chinese goods to press demands for an end to policies that Washington says hurt US companies competing with Chinese firms. China too responded with its own tit-for-tat tariffs on US goods.

This exacerbates the uncertainty in the global trading environment, affects global sentiment negatively, and adds to risk aversion globally.

Body

US – China trade war and India’s economic interests

Negative impact 

• There could be a short-term impact on the stock markets.
• In a report earlier this year, the IMF noted that the US-China trade tension was one factor that contributed to a “significantly weakened global expansion” late last year, as it cut its global growth forecast for 2019.
• India’s shipments track the global trade closely. Regressing past data suggests that for every one percentage point increase in global exports, India’s shipments tend to rise by half that much and vice versa

Positive impact

• Several economists have indicated the possibility of India benefiting through increasing exports to the US and a shift of foreign direct investment (FDI) to India.
• India is among a handful of countries that stand to benefit from the trade tensions between the world’s top two economies, the UN has said in a report.
• India can strengthen its trade relationships with both superpowers.
• As the US is being protectionist and unilateral, China and India would have to incline towards a multilateral world. China could cultivate a relationship with India as a substitute. It could also open up its markets for Indian goods and services – so could the US.
• There has been a rise in the export of goods to both countries. Export to the US grew by 9.46% to $52.4 billion. As many as 203 Indian goods are likely to displace Chinese exports to the US, like rubber, carpets, graphite electrodes, etc
• Favourable goods that can replace the Chinese goods in the US are sacks, bags, polymers, printed circuits, automobile lighting equipment, Christmas-lighting sets, etc.
• Diversion in investment flows is an opportunity that India could benefit from, as manufacturers seek alternative origination destinations.

India is not equipped enough to address the emerging challenges

• India has been relatively immune to the collateral damage inflicted on other countries — from Australia to Japan, South Korea and Singapore — by the sparring between China and the US for geopolitical influence. But that apparent good fortune owes little to diplomatic skill and even less to any economic clout. Instead, it reflects India’s lack of global competitiveness, its slowing domestic economy, its high cost of money and the paucity of risk capital.
• Exports to the US from some other Asian economies, notably Vietnam and Cambodia, have picked up much more.  
• Out of 56 companies that relocated their production out of China between April 2018 and August 2019, only three went to India
• Make in India scheme, designed to encourage manufacturing — is not very effective because of infrastructure bottlenecks.

India need to further liberalise trade, spend more on infrastructure construction, reform land and labour laws and offer tax breaks for foreign investors. Legal reforms, liberation and favourable taxes are necessary for economies to reach their full potential.

Conclusion

Indian policy of adoption of non-alignment in the Cold War era helps India to save itself from the counter effects of the trade war compared to other economies. It maintains economic and diplomatic relationships with countries from either side.

Although, if the trade war stretches for a considerable time it would help Indian economy to make strides. Yet, India should not officially push forward any such policy that intends to take advantage of the crisis. We should stick to our fundamental foreign policy of non-alignment and wait and watch without getting involved in the core trade war.