Rising trade war: A challenge or an opportunity for India?

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Updated: January 25, 2019 10:54:31 AM

Despite the situation posing various challenges, India can gain out of it, provided it uses appropriate and well-calibrated measures, experts say.

Several countries, mainly led by the USA and China, have recently resorted to unprecedented high tariffs on their imports leading a situation called trade war.

As ‘Protectionism’ deepens its root, the dark clouds of trade-war continue to hover over the global economy. A trade war is an economic conflict resulting from extreme protectionism in which economies raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other economies. It has the potential to create political tensions between economies.

Several countries, mainly led by the USA and China, have recently resorted to unprecedented high tariffs on their imports leading a situation called trade war. The US accuses China of unfair trade practices, IPR violations and restricting US investments, which China denies. According to the latest estimates, China recorded a 28-year-low GDP growth of 6.6 per cent, in the last quarter of 2018, primarily due to the trade war with the US.

Against this backdrop, a pertinent question remains — what does it mean for the Indian economy?

Despite the situation posing various challenges, India can gain out of it, provided it uses appropriate and well-calibrated measures, experts say.

According to a CARE Rating report, if global trade volume shrinks on account of this trade war, Indian exports are bound to be affected. This is because a trade war would mean higher prices and lower growth in the US and China, which contributes to $19.4 trillion and $11.9 trillion respectively, of the total global GDP of $75 trillion. This, in turn, will harm our exports and investment. Moreover, the report also warned of a possible currency battle in future if it continues.

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“Trade war disrupts the flow of goods and services between USA and China. This could affect currencies, with the dollar getting stronger and thus may add to price volatility,” Madan Sabnavis, Chief Economist, Care Ratings, said to Financial Express Online. Although it might give India opportunities to push up exports, this may not be very significant as China exports high-end electronics which it may not be able to replace. However, India can do so for other goods like textiles in which it has a comparative advantage, he added.

“We are to be watchful of what China does in other markets as it may become aggressive and dump goods to make up for loss of in USA market.” Sabnavis further said. He also suggested focussing on pushing up exports by linking it with small and medium enterprises.

Similarly, Suresh Prabhu, the Minister of Commerce, pointed out in a November 2018 interview to Bloomberg that India’s share in global merchandise exports is at 1.7 per cent as compared to China’s 12.8 per cent. Therefore, India will focus on boosting its exports to the US and other global markets as Chinese shipments become unattractive amid a trade war between the world’s biggest economies.

“New Delhi is focusing on a handful of items including automotive parts, chemicals, electrical equipment, among others after the US and China slapped reciprocal duties on each other’s goods,” he said.

Against this background, how policymakers prepare India to tackle the situation, would be interesting to see.

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