Don’t fret! Trade war is good for India in long-term: Here’s former CEA Arvind Virmani’s math

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Published: March 26, 2018 7:29:55 PM

Noted economist Arvind Virmani has said that this Donald Trump's trade war could be in India's interest as the country is not a part of the global supply chain.

Arvind virmani says trade war good for indiaArvind Virmani has said that this trade war could be in India?s interest as the country is not a part of global supply chain. (Image: IE)

The whole world is currently fearing the trade war being waged by US President Donald Trump, with some seeing recession in America and some predicting India to bear the brunt as a collateral damage the fight US-China fight. However, noted economist Arvind Virmani has said that this trade war could be in India’s interest as the country is not a part of the global supply chain.

In a long Facebook post, Arvind Virmani said that in less than one year, the loss due to the trade war would be on both the United States and China, and the US’ loss will be four times more than China, while the loss to rest of world would only be between 10% to 20% of the US. In medium-term, only China will lose and its GDP growth will slump to a sustainable 4.5%.

“As India is not part of existing global “supply chains” disruption of these supply chains cannot hurt India. Au contrare (on the contrary) it provides an opportunity to attract/facilitate their shift to India, particularly FDI exporters based in China,” former CEA to the government said.

He further added that US tariffs on steel will hurt TataChorus which exports steel from EU but not India, whose steel exports are not even in top ten. “If China sells all its US treasures, US interest rates would rise sharply, but revert over 1-2 years to normal (pre sale) trend. China would take huge capital losses and a permanent decline in interest earnings. Permanent cost to US would be fraction of that to China,” Arvind Virmani added.

He also suggested that in this US vs China trade war, India must not get involved, keep a low profile, and “do whatever is reasonably possible to avoid activating anti-India lobbies in the US. A similar advice was given by former RBI governor Raghuram Rajan, who said that India should adopt a wait and watch policy on the trade war.

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