Trade war looming large

An increasingly combative approach being adopted by the Trump administration could seriously harm multilateral trade

AuthorPublished: 8th May 2019  12:13 amUpdated: 7th May 2019  9:12 pm

A full-blown trade war between the United States and China is looming large over the global economy, the implications of which India cannot escape. As is his wont, the maverick President Donald Trump took to Twitter to spring a surprise and announce his plan to impose 25% tariffs on another $325 billion worth of Chinese imports. This has triggered a panic in the global markets and clearly unnerved Beijing. Since India’s own growth figure projections tend to be broadly in sync with global trends, it will not be able to insulate itself from the impact. It requires some tactful trade diplomacy on the part of New Delhi to convert the adversities into opportunities and stay in the game. It is time major economic powers realised that there can be no real winners in such a battle in a globalised and interconnected economy. Harmonious multilateral trade is the way forward. Bilateral trade arrangements can only provide supplementary benefits. An increasingly combative approach being adopted by the Trump administration could seriously harm multilateral trade. A full-blown trade war will badly hit the assets market, economic growth and impact investment flow into India. Given India’s exports basket to the US being vastly different from China’s, the battle of wits between the two giants is unlikely to open near-term opportunities for India. The impact of the tariff war goes beyond the trade. It upsets the global economic order.

Though India can become more competitive in segments like textile, garments and gems and jewellery, it cannot hope to become an effective substitute in the short-term because China’s exports to the US are much more diverse and it would be too ambitious to expect India to fill the gap. At a time when the two sides were on the verge of an amicable agreement, Trump’s belligerent stand has worsened the situation. As things stand now, it appears that the US will not agree for a truce unless Beijing abandons or scales down the subsidies to its companies, stop pressuring foreign companies to share their trade secrets and give them more access to the Chinese market. The biggest implication for India is that its growth figures, based on the assumption that international trade and investment flows will remain stable, might go haywire. Moreover, Trump has mastered a policy that is irksome to both his friends and foes alike. While acknowledging India as a strategic partner and a dependable ally in the war against terror, his administration has not shown any leeway when it comes to trade policies. Though the amounts involved in the Indo-US trade face-off are very small compared with the US-China stakes, the situation could have an adverse impact on investor sentiment.

 

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