US-China Trade War: Effects on Indian Economy

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Chinese and American administrations have been at loggerheads for over a year now, failing to come to a consensus on trade issues. Ever since coming to power, Mr. Trump has time and again pointed out the heavy tariffs imposed by the Chinese on US goods. The Chinese administration too has been wary of Trump’s statement. Be that as it may, trade-related tension between the two economies has reached a war scale.

 Last year, Washington raised tariffs on $200 billion worth Chinese goods to 25% from 10%. Beijing retaliated with tariff on US goods. As the clouds of uncertainty gather, this post is an attempt to examine the possible repercussion of China’s trade war on Indian economy.

Is US-China trade war a blessing in disguise for India?

According to the trade experts, a new window of opportunity is emerging for Indian goods amid rising tension between the two gigantic economies. As per the recent reports, Washington is looking forward to replace Chinese exports with Indian products.

The high import duty imposed by Beijing has substantially affected the price of US goods. According to a study, as many as 203 Indian goods have an outright advantage of replacing Chinese exports to US. 

Surprisingly, China also is taking keen interest on opening larger avenues for Indian goods in its market. The reason behind such willingness of Beijing can be traced to the slow economic growth in the second quarter—6.2%, slowest in 27 years.

Even as the Chinese officials suffice the people of China with their rhetoric, fact remains that Beijing’s mammoth economy which used to strive on cheap labour and high volumes of export has started to slump. And in the process of damage control, Beijing is providing better access to Indian goods.

According to FIEO (Federation of Indian Export Organisations) President Ganesh Kumar Gupta, India’s export to Washington has risen sharply at 11.2% in the year 2018, while export to China showed significant growth at 31.4% in the same year. These stats bear testimony to the benefit ensuing from the trade war.

How can we Indians embrace this opportunity?

The Indian Government ought to adopt a meticulous action plan in order to benefit from the trade war. On the top of the list, New Delhi can increase its export to China and reduce the trade deficit which cropped up to $50 billion last year in a total trade of $71.5 billion.

Another imperative element is that China will strive towards replacing the US hegemony over software industry. India can be the alternative that China is looking for, be that as it may, it will an uphill task for Indian software industry to match the pedigree of US. However, the promise shown by the Indian software industry allows us to bear hope.

Challenges ahead…

While India is benefiting from the trade war between the two giants, it cannot stay immune from the aftermath of trade war. Noel Quinn, chief executive of global commercial banking at HSBC, mooted an interesting point that is pertinent to Indian economy.

He articulated that India will benefit from the trade war if investment that would have otherwise gone to China comes to India. However, he was quick to point that the potential for the negative impact cannot be ruled out as in its aftermath trade war will impact world trade dramatically and by extension, global growth of GDP.

In conclusion…

Perhaps, it is too soon to evaluate the complete outcome as the trade war will have further repercussion on the global economy, pushing it into greater abyss. But as far as Indian economy is concerned, the ramification of the trade war will depend upon the meticulous planning of the government and on India’s ability to meet demand and supply in the international market.