Round The
World
New Delhi, 17 May 2019
US-China Trade War
WINDFALL FOR INDIA!
By Dr. D.K. Giri
(Prof.
International Politics, JMI)
The trade-war between
US and China is escalating day by day without a tangible sign of abating. In fact,
today, Indian media reports that China has declared a ‘people’s war’ against US
trade aggression. The trade-war between two economic super powers will affect
the entire world economy, albeit with varying degrees for countries. An UNCTAD
study reports differential impact on major economies. How it impacts India is
our concern here.
There are two
prognoses. One, it will result in marginal gains for India. The UNCTAD Report
released this February says, out of $300 billion products tariffed by the US, 6%
will be covered by American Companies, European Union’s will register $70
billion growth out of increased exports to the US, Japan and Canada by 20%,
Vietnam by 5%, Australia by 4.6%, Brazil by 3.8%, India by 3.5% Philippines
3.2% etc.
The other prognosis
is that the trade war may affect Indian economy negatively, as a competitive
Chinese economy is better for it. Because, China has a different trade basket
to offer to US which cannot be replaced or compensated by India. China exports
manufactured goods, whereas India does raw materials and semi-finished goods.
Indian goods include precious metals (diamond), pharmaceuticals, minerals and
vehicles to the US. Chinese goods are electronics, machinery, furniture, toys
and plastics.
India also exports
steel and aluminium which have registered impressive growth. As the US, in
March last year, imposed 25% duty on steel and 10% on aluminium coming from
China, Indian exports grew by 58% to $221 million. An independent Congressional
Research Service confirms this, and that production in major aluminium
companies, NALCO, Hindalco and Vedanta has increased.
Indian media and
commentators are advising preparedness by Government of India and suggesting
Indian businesses to formulate strategies to tackle the fall-outs of the said
trade-war. The alarmists are concerned about the volume of India-US trade which
is quite low compared to that of China-US. When US imposed tariffs on India, it
has paid $241 million tax to USA on 30 different goods, and got $238 million
from US goods on taxes. So it almost balanced out.
Furthermore, India is
the 9th trade partner of US. In 2018, it exported $83.2 b of goods,
and imported $58.9 b. So India’s trade surplus with US was $24.2 b, whereas US
is protesting $375 b trade deficit with China in their off-and-on trade
negotiations.
However, there is a greater
silver lining that escapes Indian media and trade observers. That is,
apparently, 150 CEOs have expressed an interest to move their manufacturing
from China to India. It’s important to strike the iron when it’s hot.
Interestingly, Indian political leadership is caught in elections, although
just one more week to go. But India’s ‘all powerful’ bureaucracy, the DGF -- Director
General of Foreign Trade, Ministry of Commerce, Department of Economic Affairs,
Indian trade promotion agencies, a plethora of officials and technocrats should
grab this opportunity. If we do not, countries like Vietnam and Thailand are
waiting in the wings.
After a week or so,
when the political leadership is in place, they must jump in and cash on in the
ongoing trade war. Most possibly, it’s going to get a lot worse. This is the
perfect time for Indian Prime Minister (whoever it may be) to take advantage
and strike a good deal with Donald Trump on trade. It’s time to do perhaps an
energy deal, together with next generation of technology development addressing
the space, which is US vantage area. There are other areas too, buying into oil
technology development.
By now, we know,
Donald Trump is a transactional person and timing is everything with him. He
likes big deals and it has to be bold and new. New Delhi can chip in at this
stage. Trump or the US will not concede the technological or military
superiority to China. Xi Jinping started the trade war too hard and too soon.
China may go to WTO, but the record of US-China conflicts there goes heavily in
favour of America. They have taken 23 disputes so far, 19 have gone in favour
of US and 4 are pending.
China, since the
founding of the Communist state has had good relations with US, and has reaped
huge benefits. Mao Tse Tung staged the ping-pong diplomacy to break the ice in
1971, Nixon supported him in his stand-off against Soviet Union. In 1950s, Mao
overreached. He challenged the Soviet Union leadership in international
communist movement. Soviets retaliated by pulling out their scientific and
technological advisors, and scrapping aid programmes to China, hitting the
undeveloped Chinese socialist economy. Mao was perhaps influenced by the
Chinese belief of Middle Kingdom’s rightful rule of ‘tian xia’ everything under
heavens.
History repeats. Xi
Jinping did a similar mistake to challenge US supremacy. He by far is the
second most powerful leader of China after Mao. Xi assumed power as CPP General
Secretary in late 2012 and President of People’s Republic in early 2013. He changed
the Constitution last year to enable himself to stay in power for life. Xi came
to power when China was high on its so-called economic miracle and rode on an
anti-corruption platform that made him instantly popular. He championed and fed
the Chinese dream-prosperity, strength and well-being of people.
Obviously, Xi has
failed to manage the US-China relationship. He has been explicit in challenging
the US presence in Asia. It has taken aggressive steps in Taiwan and South
China Sea. Chinese battleships have sailed through American water off the coast
of Alaska, although China claimed to be exercising internationally recognised
‘innocent passage’. Undoubtedly, the move meant to be a show of force. In the
official media, Anti-American, rhetoric became a routine affair.
Beijing has two other
dubious mechanisms to compete with other countries. It co-opts the members of
Chinese diaspora for political infiltration in other countries and high-tech
transfer out of them. China calls it ‘thousand and talents plan’. The other is
to use its private companies to gather intelligence for the country under their
controversial national intelligence law of 2017. For instance, the Chinese flagship
company Huawei rewards its employees for IP theft!
As the Americans came
to know of these tactics, blue-ribbon scholars and ex-officials in US advocated
fundamental change in America’s attitude towards China. In fact, they declared China
as America’s Enemy No. 1 and the biggest security threat.
Apparently, Xi was
oblivious of this radical change in American perception when Trump hit them
with a Tariff war. US demanded that China reduces and eliminates the trade
deficit, provides verifiable measures for IP rights, and greater access to
American goods. The Chinese agency Xinhua claimed that US is fighting China of
arrogance as China fights for its legitimate rights.
Xi has problems that
he did not factor in the fight. China has a greying population. The young work
force is depleting and even Xi’s two child-policy hasn’t helped, Chinese
economy is in debt. So, under negative dynamics of demography and debt, Xi will
find it hard to maintain the fight, as Americans will want to push the knife
deeper.
To sum up, it would
be better for the world economy, if both the economies stopped the trade war.
As an UNCTAD representative said about the protective tariffs, “it is a gun
that recoils on ourselves”. But, it’s easier said than done. The trade war is
complicated, mixed up with the race for world supremacy. We keep our fingers
crossed, but New Delhi should be alert and alive to promote its own economic
interests I mentioned above. --- INFA
(Copyright, India
News & Feature Alliance)
New Delhi
15 May 2019
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