US-CHINA TRADE WAR: A BOON OR A BANE FOR INDIAN TRADERS?

The US-China trade war is not a new one. While the two countries have been trade partners
for years, they also have had several trade discords. The current US paranoia, that several of
the major global trade agreements leave them open to exploits and Trump’s dissatisfaction
with Chinese trade practices in particular triggered a series of sanctions that led to counter-
measures taken in turns by the two states. The US, imposed sanctions of 25% on steel and
10% on aluminium impacting $2.7 billion worth of Chinese Exports. The United States also
accused China of using unfair trade tactics of forcing American-businesses to hand over
technical know-how in exchange for an entry into the Chinese markets. On April 2, China
retaliated by issuing tariffs on 128 products it imports from US worth $2.4billion. The back and
forth between the two heads of states continued over the next three months with the two
countries often issuing threats of imposing further trade tariffs on the other. The impending
trade war finally came to a head on July 6th with US imposing 25% duty on $34 billion of
Chinese goods and China retaliating with a similar tariff soon.

Why now?
The main reasons cited by Trump administration for the tariffs against China are safeguarding
intellectual property rights and growing trade-deficit. The groundwork for the trade war laid
down in Aug-2017, when Trump administration ordered the investigation to measure the IP
theft. The commission reported total loss of $600billion from the IP theft and out of which china
contributed to more than $225billion. But many analyst opines that Trump’s real motivation
behind tariff imposition is to implement election promise and to garner votes by reviving steel
and aluminium industries. Although the tariff will increase profits for concerned industries but
at the cost of increase in product price which will ultimately be borne by the end customer.
This is in line with the belief that in political circle, you will get more votes for generating jobs
then making the product cheaper.

India’s current trade status with US and China

India and US have traditionally had strong trade relations. In 2017, the total bilateral trade
between US and India was 126 billion USD, an increase of 10.4%. The import of goods has
increased at a rate of 15% in 2017. The export of goods has increased by 5% in 2017. But
2018 gives a vibe that all is not well between US and India though there are several impending
deals in aerospace, petroleum and gas. The US-tariffs imposed on Aluminium and Steel
products early this year with no relief similar to the exemption given to Argentina and Brazil
has hit Indian exports hard and had to retaliate with similar sanctions. The restoration of US
sanctions on Iran will definitely pressure Indian oil imports and stifle breathing of Indian-built
Chabahar port in Iran. Also India is listed on Priority Watch List in the USTR Special-Report
for IP rights implementation.
The total bilateral trade between India and China was 89.6 billion USD. However, it is largely
skewed in favour of China, with China having a trade surplus of 63 billion USD. This is also a
cause of concern for India.

Impact on Indian trade

The global impact of the trade war was felt as early as Mid-June, when Trump’s directive to
identify $200bn worth of Chinese goods for increased tariffs. The week following that saw dips
in not only Chinese and American composite indices, but also of emerging benchmark-
markets such as South Korea (down 1.5%), Hong Kong (2.8%) and Taiwan (down 1.7%) also
took a hit. In India Nifty dropped by 0.83%. The trade war is also likely to increase the price of
commodities such as steel, crude oil and cotton. India is poised to benefit from such a
scenario, especially when it comes to Cotton, where U.S. and China represent the biggest
exporters and importers respectively. Weakening of the Indian rupee means that exports
become more attractive, including freight charges as well.

Opportunities for Indian traders

The trade war between the US and China brings lot of opportunities to Asian market and
especially, India which has a potential to reduce its trade deficit of $51billion with China. The
fallout presents huge opportunity for India to target $14billion business of soya-bean, emerged
after tariff imposed by China on USA. India can also bank on the cotton business with china,
who used to source it from USA, leveraging the advantage of price and proximity. In fact, a
business deal of supply 85,000 tonnes of cotton has already been signed between India and
China. The increase in India’s cotton output by 8.3 percent this year is compounded by China’s
flagging cotton inventories. Export of garments, gems and jewellery also looks promising in
the given context.

Trade fist-fights have been happening between US and China for a very long time, but the
current escalation of matters signals at something deeper. With China expanding its control at
home and abroad through its regulatory regime and US trying to curtail China's expansion,
each nation is trying to protect their share in world economy and their own domestic interests.
If this escalates further, Beijing is likely to bend closer to Delhi. It makes sense for China to
get India on its side if the trade war worsens instead of having two simultaneous fighting fronts.

Considering the recent trade skirmishes with US, Delhi is also likely to flex towards Beijing
without severing relations with US. India quite possibly would leverage this opportunity to
shorten the trade deficit with China. Reading it along with the positive meetings held towards
improving the bilateral ties between India and China, the traders trading between India and
China needs to gear up to fish maximum gain out of the trade waters mired recently. As
reported by PTI, Beijing has already marked down its tariffs on imports of products like Soya
bean from India, South Korea, Sri Lanka, Bangladesh and Laos.

REFERENCES
https://www.washingtonpost.com/blogs/plum-line/wp/2018/03/02/the-real-reason-trump-
wants-to-start-a-trade-war/?utm_term=.03f51f27efa6
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realignments-post-modest-gains-on-trade-but-economy-may-suffer-hammer-blow-
4683441.html
https://www.cnbc.com/2018/06/26/us-china-trade-war-would-be-an-opportunity-for-some-
asian-economies.html
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