Flaring US-China trade war may open a window of opportunity for Indian exports

The world’s largest economy, United States, that championed the cause of free trade, has now become myopic in its outlook as it increasingly resorts to protectionism triggering a global trade war.

US President Donald Trump seems to be in conflict with several other countries, be it Canada, European Union, Russia, and lately Iran, China and India. His tantrums have sparked off retaliatory actions by several nations against the $16 trillion US economy.

Whether these unpleasant developments are mere posturing or serious economic issues, only time will tell but on the face of it, these are worrying for the global economy, which is now on a revival mode, trade experts said. “This is certainly not good for global trade,” warns Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO).

Global trade, which is usually 1.5 times that of global growth rate, clocked 4.7% in 2017. It is expected to clock 4.4% in 2018 and hover around this range for next two years. But it is yet to reach the average 4.8% growth for two decades before the 2008 financial crisis.

There are already fears that Trump’s antics can pull down the global trade growth.

Last week, US announced a 25% tariff on up to $50 billion of Chinese products from June 21, prompting retaliatory action by China with 25% tariff on $34 billion of US goods. Lately, Trump has threatened additional tariffs at a rate of 10% on $200 billion worth of Chinese goods. In response, China has promised counter measures.

This trade war came close on the heels of US unilateral action on Iran, which was preceded by actions against Russia. While sanctions on Iran could impact India’s oil imports and the one with Russia could impact India’s defence purchases.

The trade war between US and China is being closely watched by the rest of the World, trade analysts said, adding the sanctions against Iran and the troubled situation in the Middle-East could result in another oil spike and volatility in exchange rate. This could have a negative impact on oil importing countries like India.

Several countries have already knocked the doors of World Trade Organisation (WTO) after the US levied high tariffs on aluminium and steel imports. The countries badly hit by this unilateral US action are Canada, Mexico, European Union and China. India too, which has been hit by the US action, has approached the WTO.

Accordingly, on June 16, India’s commerce ministry notified WTO that it would hike tariff on 30 imported US goods by up to 50% over the current duties.

These include motorcycles, heavy machinery, chocolates, almonds and shrimps.

This is in response to US increasing duty on aluminium and steel imported from India. It is estimated that a combined loss would be about $240 billion, which is not significant but mutes the expansion possibility.

Care chief economist Madan Sabnavis said India will have to be “cautious” at this stage as the trade war could be extended to India as well. United States under President Trump is unpredictable and has already indicated Washington could levy higher tariff on some of the products imported from New Delhi. This is a possibility as bilateral trade balance is loaded in favour of India.

The Sino-US trade war, however, opens up an opportunity to boost India’s exports to the United States, Sahai told DNA Money. This can happen provided Indian industry gears up swiftly to take up this challenge. The India-US trade is over $100 billion. Both in merchandise and services, the bilateral trade is loaded in favour of India. But there is also a possibility of dumping from China in the face of US restricting imports from Beijing, trade analysts said,

India also has lessons to learn from the trade War. New Delhi cannot remain complacent as Washington may demand enhanced market access in farm and dairy products and medical equipment. Although India’s trade surplus with the US is little over $25 billion as compared to China’s $337 billion, America reckons India as a big market for its dairy and farm products and medical equipment. India is one of the largest producers of fruits and vegetables with horticulture recording bumper harvest of 375 million tonne this year. Import of US farm products will worsen farmers and food security concerns.

The United States has threatened to withdraw the special and differential flexibilities for India, China and South Africa.

But trade experts see a window of opportunity for New Delhi to step up farm exports to Beijing which can help in narrowing the trade gap with China, now at over $50 billion. Indian can increase its global farm exports to $100 billion from the present $40 billion. India like China produces non-GM fruits and vegetables.

The trade war has certainly opened some trade opportunities and it is now up to the government and exporters to cash-in on it, analysts said. FIEO regional head and a top garment exporter A Shaktivel said that as it is garment exports are not doing well and a trade war will definitely hit the Indian exports which of late has started looking up.

Indian will do well to be cautious and it could be the next target. There may be some window of opportunity as well  and that depends on what Chinese items  attract higher tariffs in the United States.