Why China VS. USA Trade War Isn’t In India’s Interest
You may have already seen your friends cheer US President Donald Trump’s intensions to draw battle lines with China. WhatsApp inbox is flooded with messages and graphic on how Chinese economy would be brought down to its knees and the Dragon would be forced to deescalate on economic and military fronts on its neighbourhood.
But should you really cheer Trump’s decision to impose increased duties on Chinese products and Xi’s counter move by announcing tariffs on goods imported from US?
To speak from a position of logic and keeping national pride and jingoistic thoughts aside, a US-China Trade War isn’t in anybody’s interest and definitely not in India’s.
Let us take a look at some of the negative impacts it can have on India.
When too big to fall, better not fail
Recall the 2007–08 financial crisis and you would remember how the term ‘too big to fail’ had become a part of the common discourse. You would also be able to recall the names of financial giants such as Lehman Brothers and Merrill Lynch which failed and their failure had a domino effect on the global market.
A few weeks after news reports of subprime mortgage crisis hit the newspapers, the global economy saw its greatest meltdown since the Great Depression. With United States and China accounting for nearly 38% of the global economy occupying the №1 and 2 spots, any trade war between the two has the potential to take the world into another crisis, trade and financial.
We have already witnessed the trigger with US ban on ZTE and if the war persists, many of the billion dollar enterprises in either country may end up in serious trouble and take others on a deep sea dive.
It can stress India’s banking sector further
Increase in import tariffs for Chinese made goods would have a near term inflationary impact on the US markets. Importers will be forced to pass on the added import costs to the consumers.
This will put pressure on the Federal Reserve to increase the rates faster than it would have done in the normal course. This can immediately dent a blow to the Indian economy along with other emerging markets that consider US a major trading partner.
There would be increase in bond sales and given the fact that Indian banking sector is already hit by increasing NPAs and the negative press they have earned in the recent months, the last thing they would want is a trade war between United States and China.
It can hurt India’s exports
While cheer leaders are selling the idea that India can capitalize this opportunity and immediately become one of the major exporters to the United States, in reality even current exports may shrink.
Along with rising inflation there would be job losses in the US and this will have a major impact on India’s exports. Gems and precious metals is India’s largest exporting sector to the United States.
In a high inflationary market there would be few buyers for these items in the United States.
Should you thus cheer for a US-China Trade War?
Purely from an economic point of view, one should wish the belligerence subsides on both sides.
While there are grievances in both countries,let wise men and women take charge of the situation and resolve issues in a way that doesn’t bring back memories of 2007–08 when job losses, low growth and vaporising of wealth were the common discourse.