Context:

During Trump's first term, the US abandoned the principles of free trade that it once promoted, leading to trade wars, particularly with China. A more aggressive US trade war against China during Trump's second term is expected, which is raising concern for the global economy.

What is a Trade War?

A trade war starts when two countries impose import restrictions or raise import tariffs. A tariff is a tax or fee imposed by a country on imported goods.

A trade war could harm both countries, their industries, and consumer sentiment, compromising numerous sectors of their economies. Trade war supporters, on the other hand, argue that such this benefits domestic businesses and protects national interests.

Trade wars are an unavoidable consequence of protectionism, which is mostly the result of governmental acts and regulations that restrict global trade. Protectionism is a strategy used by countries to prevent foreign competition in their domestic markets and labor markets.

US China Trade War

The US-China trade war began formally in 2018, when the Trump administration-imposed tariffs of about $350 billion on Chinese imports, alleging China for unfair trade practices such as intellectual property theft and forced technology transfer. China responded by imposing tariffs on $100 billion of US exports, triggering a tit-for-tat escalation of protectionist policies.

Why is India concerned over the US China Trade War?

The US-China trade war presents both challenges and opportunities for India's economy, influencing exports, imports, and overall trade strategies. India's economy has a vital connection to both the United States and China, its two largest trading partners.

India, the world's fifth-largest economy, cannot avoid the consequences of the trade war. Any economic slowdown caused by trade disputes between the United States and China has an impact on India's trade balance, foreign investment, and global supply chains.

The US is India's largest trading partner, with bilateral trade estimated to be around $128.55 billion in 2022-23.

Despite political tensions, China is India's second-largest trade partner. In 2022, bilateral trade between India and China was $135.98 billion, with India having a significant trade deficit of $101 billion.

Opportunities for India

One of the immediate effects of the US-China trade war has been a reorganization of global supply chains. Many US companies are turning to countries such as India, Vietnam, and Indonesia as alternatives to Chinese suppliers to avoid tariffs.

Many US retailers have moved their sourcing from China to India, benefiting India's textile sector. The Indian garment industry is seeing an increase in orders from US buyers looking to diversify their supply chains away from China.

India has emerged as a potential electronics manufacturing hub. The Indian government's "Make in India" and Production Linked Incentive (PLI) programmes have attracted multinational corporations such as Apple and Samsung, who are looking to diversify away from Chinese manufacturing.

The United States imposes steep tariffs on Chinese agricultural products, including soybeans, making India a viable choice for American importers. Indian agricultural exports to the United States have increased significantly, particularly rice and cotton.

India is the largest supplier of generic drugs to the United States. With China's supply chain experiencing disruptions, India's pharmaceutical sector has stepped in to meet global demand, increasing its export potential.

Challenges for Indian Export

Indian businesses face rigid competition from Southeast Asian countries such as Vietnam and Bangladesh, which have also positioned themselves as alternatives to China.

India's infrastructure and regulatory barriers make it less competitive than other countries in attracting investment and expanding production capacity.

Impact on Indian import

India relies heavily on China for a range of imports, such as electronics, machinery, chemicals, and pharmaceutical ingredients. Despite tensions, China remains India's largest source of imports.

Electronics and hardware components make up a large portion of imports from China. The US-China trade war and following sanctions on Chinese technology companies led to supply chain disruptions, which also affected Indian industries, such as consumer electronics and telecommunications.

China supplies around 80 % of the raw materials used in the pharmaceutical industry, therefore any disruption in supply could result in generic medicine shortages, affecting both domestic health services and export markets.

The auto industry depends on Chinese components, and trade disruptions may result in production delays and cost increases for Indian manufacturers, which may reduce the competitiveness of Indian exports in this sector.

Way Forward for India

India should strengthen its economic and strategic ties with the United States, which are expected to grow further under the Trump administration, as both countries seek to counter China's growing influence. The Quad (Quadrilateral Security Dialogue), which includes India, the United States, Japan, and Australia, is one such strategic alliance that could benefit from improved trade relations.

India's relationship with China remains complex. While India seeks to reduce its dependence on Chinese imports, particularly in sensitive sectors such as technology and defense, it cannot completely cut off trade ties due to the large volume of bilateral trade. To minimize import dependency, the Indian government initiated policies like “Make in India” and Atmanirbhar Bharat to promote India as the manufacturing hub.

India could play an important role in reshaping global trade policies through multilateral organizations such as the World Trade Organization (WTO) and the G20. By advocating for more equitable and open trade practices, India can influence reforms that benefit developing countries.

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Source:

Indian Express