India must resolve differences with America to seize opportunities from US-China trade war

Earlier this week, the United States and China escalated their trade war with Beijing letting its currency, Renminbi, fall by 1.4 per cent and Washington accusing the communist nation of being a currency manipulator. The latest round of tit-for-tat moves came after the United States signalled its intention to impose 10 per cent tariffs on Chinese products worth $300 billion, beginning next month. In response, China announced that it will stop buying US agricultural products and would increase tariffs on products it has already purchased. With the markets reacting predictably — Dow had the biggest plunge of the year on Monday — the fear is that the fallout from the year-long conflict could affect other global economies, including India, Japan and the European economies. 

 

However, in the short run, India and other emerging economies of Asia have benefitted from the trade between the world’s two largest economies. India has seen an increase in its exports to China, owing to higher tariffs on US products, as well as the United States, though not by as much. India’s overall exports to the US grew by just 9.46 per cent to $52.4 billion in Fiscal Year 2019, whereas China saw a growth of 25.6 per cent to $16.7 billion, indicating a paradigm shift in the future. 

 

Looking at the products on which China and USA have imposed tariffs on each other, India has made modest gains in capturing such market, said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in a recent report. As expected, India has widened its market share in both countries, which is reflecting in textile exports to the US. American textile imports from China have declined, shifting their focus to Vietnam, India and Bangladesh. Meanwhile, the Indian commerce ministry has identified 203 products where exports could be increased to the US, replacing Chinese goods, and 151 items where exports to China could rise, due to the trade war. 

 

In the case of exports to China, India is looking at replacing the US in 47 lines of products from the US, which are facing a steep 25 per cent tariff, including some chemicals, granite, inverters, copper ore and concentrates. Ever since the US-China trade war began, there have been talks of India reaping benefits from it. However, India’s gains so far have been significant but not substantial. At the moment, India is nowhere near positioning itself as an alternative industrial hub. In order to get there, the country has to urgently expand its struggling manufacturing sector and open up for more investments in diverse fields.