As the world grapples in the clutches of Corona and people world over speculate on how the post-COVID 19 era would look like, elsewhere in the international platform, two superpowers are locking horns in a long dragging trade war. The trade war between the United States and China is an economic conflict that started becoming prominently visible since 2018 and has caused economic damage to both the countries involved, trickling down its impact to the world economy.
A Story so far…
One major concern Donald Trump has right from the initial days of his tenure was the prevalent “unfair trade practises” majorly in the trade relations of the US with China. In fact, one of the major focus of his Presidentship campaign in 2016 was to bring in policies to curb these “unfair practises” which weighed heavily against the US. Among these unfair practises, the major concerns were a growing trade deficit in the US, theft of intellectual property and the forced transfer of American technology to China. From 2018, Trump began to set up a series of tariffs and other trade barriers, starting from imposing heavy tariffs in import of steel and aluminium from China. Apart from curbing the earlier mentioned unfair practises, the move was also aimed at protecting American goods and boosting local business in the US.
However, China considered these moves as a deliberate attempt by the US to curtail its rise as a strong global power. It marked the beginning of a cold war, when China too retaliated by imposing tariffs and trade barriers for import of US products to the country. The period from 2018 to Dec 2019, saw a series of back and forth negotiations, failed trade talks, tit for tat tariff wars, fresh restrictions and trade barriers and several WTO cases fought between both the countries. In Aug 2019, with China halting purchases of US Agri products and Chinese Yuan weakening considerably which in turn lead to an equity market plummet, US accused China of engaging in currency manipulations.
Finally, in January 2020, the US and China signed the Phase One trade deal of the “Economic and Trade Agreement between the United States of America and the People’s Republic of China” which highlighted a consensus on rollback of tariffs, expansion of trade purchases, renewed commitment on intellectual property, technology transfer and currency practises by both the countries.
Though the signing of phase one deal sent across a positive vibe, with the onset of COVID 19, the relations between both the countries has strained again. With US being the worst hit by pandemic, Trump now accuses China of irresponsible handling of the virus, which has put the global economy and hundreds of millions of life world over in peril. Amidst rapidly escalating bilateral tensions, Trump has announced a series of new decisions including issuing a proclamation to deny the entry to certain Chinese nationals and tightening of regulations against Chinese investments in America. Sanctions has been imposed on the Chinese Tech Giant Huawei for using US machines and software and US has also initiated delisting of Chinese Companies from US Stock Markets. US President Donald Trump has also severed ties with the World Health Organisation (WHO), accusing the international organisation of siding with China to misguide the world on the gravity of situation that COVID 19 is presenting.
A story of losses and gains….
This long dragging trade war has had repercussions in both the US and Chinese Economies as well as the global economy. The trade volumes between the US and China dipped steadily over the turmoil period.
Source: Statista
As per latest report, the trade war since 2018 has erased $1.7 trillion of market value from American Companies and has cut US investment growth by 0.3% by the end of 2019. The ripples of the ongoing trade war were felt in the agricultural sector, manufacturing and auto sector, stock markets as well as domestic politics in the US. The trade war has also slowed down the Chinese Economy and has made it an investor’s pain when it comes to returns from investments in the country.
While both US and China faced huge economic damages with the ongoing trade war, global economy too faced the heat. Globally, foreign direct investments have also slowed down. Many countries including the US, Germany, UK, Japan and South Korea showed “a weak manufacturing performance in 2019”. The ongoing crisis has also led to several Asian Governments putting stimulus measures in place to address the damage from the trade war. To add to the woes, COVID 19 pandemic has further deepened the crisis.
However, just like how every coin has two sides, the ongoing crisis has also benefitted many countries in the form of opportunities for increasing exports to US and China, as trade volumes between both the countries decreased. Vietnam remains the lead beneficiary here as many tech companies from the country moved their manufacturing to the US. South Korea, Malaysia, Mexico and Brazil has also benefitted from the opportunity to chip in and fill the gaps created by the tiff between both the countries.
What in the Story for India?
When the world economy is embroiled in the economic conflict between US and China, it is opening up a great opportunity for India. As an emerging global power, our country could very well become a preferred option for investments shifting their base from the warring countries. As trade tensions between US and China led to decline in world output, India recorded $44.8 million in exports to US and $14.6 million to China in 2019. Furthermore, amidst the ongoing crisis, US sees India as a natural ally against China and there is a high probability that the US foreign policy will be aligned to provide a major push to Indian growth goals in post pandemic era as they seek a strong ally in us. China too might like to go with tactical diplomatic relations with us to avoid an unfavourable tilt in the balance of international relations.
However, with Corona engulfing the country and devastating the Indian economy and with a deep recession looking inevitable, India would need to buckle up twice as hard to cash in on the ongoing trade war. If the Government’s push towards self-reliance finds a fruitful execution and if Make in India movement gains momentum, we stand a big chance to benefit the most from the turn of events. It all depends on how post lockdown period, when the economy slowly gets back on track backed by the stimulus package, plays out for the country. If we manages to become “Atmanirbhar” to cater to the new order that will set in post COVID19 , then clearly India will emerge beneficiary in the ongoing economic standoff between two superpowers and emerge a resilient global leader.
