US – China Trade War Will Impact Global Economy, Including India
A unique new kind of warfare, the global trade war, is now on the horizon. The flashpoint is the slugfest between the world’s two largest economies, the U.S. and China to ensure that their products remain cheap and affordable. This is the main aim of the battle, of which the first skirmish began in March this year when U.S. President Donald Trump raised tariffs by 25 per cent on imports of steel and aluminium from all over the world including 3 billion dollars worth of supplies from China. At the time, he had exempted the European Union and neighbours like Mexico and Canada. Those exemptions were withdrawn a week ago. To add to the belligerence, he has now threatened to levy 25 per cent tariff on goods worth 50 billion dollars imported from China. In turn, the Asian economic powerhouse has threatened to levy retaliatory tariffs on goods ranging from pork to soyabean being imported from the U.S.
The latest round of talks between the two countries in Beijing has ended in a stalemate. Irked by the U.S. President’s tough public talk, China has threatened that all the decisions taken at this meeting will be revoked unless it is publicly stated that the proposed tariffs will not be imposed.
During the negotiations, media reports say the Chinese government had agreed to buy more goods from the U.S. in a bid to curb the trade deficit. The focus was on energy and plans to buy liquefied natural gas from Alaska. In addition, China had agreed to lower technical barriers to trade that could potentially double agricultural exports to that country. Besides, it had even cut tariffs on consumer imports and were planning to remove curbs on foreign investment in energy and transport sectors. The Chinese authorities were perturbed that despite these offers, the Trump administration continued to make public threats about levying higher tariffs.
The rest of the world is watching the situation with concern as a trade war between the U.S. and China will have an impact on the entire world. In case the effort to slow down China’s growth succeeds, it will mean lower demand for goods now being imported from many other countries. For instance, some countries are exporting components to China that are used in products meant for shipment to the U.S. Others manufacture goods in the U.S. and supply to China, like in the case of automobiles, an item on which tariffs may be raised by the latter.
Not only that, the tariff war launched by the Trump administration can ultimately harm rather than help the booming U.S. economy. Many analysts have recalled that a similar hike in steel and aluminium tariffs in 2002 during the tenure of former President George Bush had to a steep rise in domestic steel and aluminium prices at the time. This in turn had led to the closure of many small businesses and job losses rather than job creation. In this context, one must point out that one of the reasons being given for this aggressive attitude by Donald Trump has been the need to propitiate his blue collar constituency. This segment has seen many jobs go overseas due to closure of factories in the U.S. The strong action against China is thus seen as a retaliatory strike against the forces that took away those jobs. Unfortunately, such policies are more likely to end in more jobs being lost than creating any new jobs.
As far as India is concerned, protectionist rise in tariffs is bound to hit its exports to the U.S as well as China. In the case of the U.S., it has already been marginally impacted by the increased levies on steel and aluminium exports as it supplies only two per cent of that country’s requirements. But in case the tariff war expands, it could be affected in a much bigger way. Currently, India is trying to benefit from the prospect of soyabean exports being scaled down from the U.S. by offering to supply this commodity to China. But such advantages can only be in the short run. In the medium and long term, higher tariffs will definitely mean a setback to the efforts to increase exports.
It would thus be in India’s best interests to join hands with other stakeholders like the European Union as well as other Asian countries to deal with the situation. For the time being, it may not be affected by the turmoil in the global economy. But it cannot remain untouched in case the current strains between the U.S. and China erupt into a full blown trade war. For the time being, however, it needs to closely monitor the situation and ensure that India’s economic interests are not compromised in any manner at all.
(Views expressed are personal.)