THE IMPACT OF THE US-CHINA TRADE WAR ON THE INDIAN ECONOMY

Throughout 2018, US and China were locked in several rounds of to and fro spurts of the trade war, beginning with the former adopting strict trade measures to curb imports in terms of specific products and then moving on, specifically to Chinese imports. This went on for quite some time and it wasn’t long before both US and China ended up raising tariffs on about $50 billion worth of each other’s goods.

 

This trade war has brought more harm than good for the two countries that are involved. The trade gap between the two countries is ever-increasing and in addition, has led to:

1. A sharp decline in bilateral trade between the said countries
2. Higher prices for end-users.
3. Trade diversion effects: increased imports from countries not directly partaking in the said trade war. A trade worth about $21 billion was diverted to other countries, while the remaining $14 billion was majorly lost or captured by US producers. Thus, it can be said, that the world GDP has dipped by as much as $14 billion! 

Fig 1: The trade deficit between the USA and China as of 2016, was as much as $400 billion

Impact on Indian economy:

According to a Live Mint report, trade diversion benefits to countries like Korea, Canada, and India ranged from $0.9 billion to $1.5 billion.

India gained around 755 million by additionally exporting to the United States:

1.          Chemicals worth USD 243 million.
2.         Metals and ore worth USD 181 million.
3.         Electrical machinery worth USD 83 million.
4.         Various other machinery worth USD 68 million

Fig 2: India’s exports to the US increased in 2018, whereas there is a visible dip in Chinese exports to the US in the same period.

As a result of this trade war, the export of other items like Agri-food, office machinery, textiles, and apparel from India to the US has also increased exponentially

Fig 3: Trade surplus between India and US increased in 2018

As of 2018, the already existing trade surplus between India and US increased to about 87.5 billion USD.  (Figure 3)

Although the declining trade engagement might prove to be a blessing in ‘guise for countries like India and Brazil, it should be kept in mind that it shall only be for a short term. For example, India might come up as a full-scale exporter of soybean in China, along with some rice and fish oil varieties.

A full-scale trade war, however, doesn’t provide much hope. The latter can tend to pave the way

for excessive inflation and low economic growth.

The biggest impact could be on the Indian currency which has been battling against the USD for quite some time now.

Conclusion:

For India to possibly turn the tables and compete with exporting powers like Vietnam, Malaysia, and Singapore, Indian geopolitical and trade strategies need to be revisited to maintain strategic trade ties with both US and China.

--- Author Sneha Das