Economic Highlights
New Delhi,
16 April 2018
Sino-US Trade War
INDIA MUST RETHINK STRATEGY
By Shivaji Sarkar
The
trade war between the US and China has a neutral victim in India. The
escalation is likely to hurt India, forcing it to look for alternative markets
as the trade growth globally may get hit.
India,
though had a feeling of bettering relations with the US, is worried as the Americans
slap 25 per cent tariff on steel and 10 per cent on aluminium imports. The
Trump administration exempted EU, Australia, Argentina, Brazil, Canada, Mexico
and South Korea. But India is not in that list.
This
has led India to mull over moving to WTO dispute resolution committee to
challenge the US duty hike. The issue becomes important as the US is also
threatening to drag India to WTO for a number of export promotion schemes. The
US says India is subsidising exports of a number of goods.
The
US moves are likely to hit handicraft, handloom and garment and some farm goods
exports.
China
has already moved the WTO forum against US duties on steel and aluminium. A
powerful US, however, has weakened the WTO on many issues. It has also made the
UN having a less effective look.
India
is going through a difficult patch. The global GDP was valued at $75.3
trillion. The US has $19.4 trillion economy and China $11.9 trillion. Currently India's economy is estimated at
$2.5 trillion. The
IMF recently forecast a global trade growth but as the situation deteriorates,
it may have to downgrade its projections.
The
situation is slowly becoming critical. Indian exports may get hit and much to
the chagrin of the US, India in many ways may get closer to China. As President
Donald Trump imposes heavy tariffs on Chinese goods, India looks to the opportunity
of trebling its cotton exports to China in the wake of 25 per cent import tax
on 106 commodities, including cotton, from the US.
This
might lead India to change strategies despite its own battle against Chinese
goods. Indian cotton traders are keen on increasing the sale from 800,000 bales
to about 2 million bales, each of 170 kg to China in the season beginning
October. If it happens, Indian cotton farmers will get better price. China so
far is dependent on the US cotton and also imports it from Brazil and
Australia. But the latest Chinese indirect negotiations with the US may finally
reduce Indian benefits.
China
wants to increase its trade with India but while it comes to imports it
restricts it to raw materials largely. Indian cotton is also one such item.
India
has to tread cautiously on many other areas, including its tyre industry. The
US sanctions may hit Chinese automobile and aircraft tyre exports. The 17 per cent
fall in rubber prices at Tokyo commodity exchange and about 24 per cent fall in
Indian domestic market is an indicator of another crisis.
It
may lead to glut in Chinese markets and consequent dumping at throwaway prices
in India and other Asian markets. It can lead to a crisis for the Indian tyre
manufacturers though exports are increasing at 6 to 8 per cent and occasionally
at a higher rate.
So
far, the anti-dumping duty in India is keeping Chinese imports that had hit the
Indian tyre manufacturers at bay. But there are possibilities of tweaking
grades of tyres to circumvent the tariff classification. Once again India would
have to move the WTO even as it fights the largest number of anti-dumping cases
against China.
Indian
tyre industry is thriving on domestic auto market boom. As international
players dot the country, its tyre industry has established brand equity
overseas. The industry earns about 15 per cent of its annual turnover of around
Rs 50,000 crore from exports, according to Automotive Tyre Manufacturers
Association. An imbalance in international market can hit it.
Similar
cycle of retaliations may mark the WTO and hit trade growth, says WTO Director General
Roberto Azevodo. His comments came as he released forecast of 4.4 per cent
growth in trade volume in 2018 and 4 per cent in 2019. The world economy showed
growth after seven years since 2011. Azevodo noted that uncertainties were
rising again with rising protectionism, a hint to the US dumping of $50 billion
duties on Chinese goods and similar retaliatory action by China.
The
WTO warned that global progress could be undermined if protectionist move
increases. But it is bound to increase. India is not in a happy situation vis-a-vis
China and with the US too now it is having problem. The EU has also grown
protectionist.
India’s trade deficit with China
stood at $51.08 billion in 2016-2017. The India-China total trade was at $71.48
billion. It has ten-fold increase in a decade. Electronics, machines and
chemicals lead Chinese exports to India, while India sends China mainly cotton,
copper and precious metals.
China has failed in its
promises to ease market access to India's farm produce, IT goods and
pharmaceutical products. Chinese exports to India are 2.8 per cent of its total
exports in 2016, for India it is 17 per cent of its total exports.
India’s ‘Make in India’ has helped
it marginally but it has hit the domestic consumers as the stoppage of cheap
imports has increased domestic prices.
The tough and not so favourable
approach of Trump is another zone of discomfort. Unlike his predecessor Barak
Obama, he has little sympathy for India. Howsoever, India may expect its
support, the recent US decision to restrict visa to professionals is pinching
the IT industry.
The appointment of John Bolton,
known for his opposition to India’s entry to UN Security Council, as National
Security Advisor may further delay India’s chances. He is hardliner and is
known to be against the UN having an effective role in global issues.
In such scenario, India has to
reposition itself. The recent defence exposition in Chennai and efforts to have
a say in the global arms business by Prime Minister Narendra Modi helps keep up
the ante. Marketing of arms, security and other such equipment could keep India
at a different level. But it is a beginning for the country and would create a
new scenario in a decade. It also emphasises that India has to change its
international and export strategy to become an effective player in
international affairs and protect its trade. --INFA
(Copyright, India News & Feature Alliance)
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