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

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  • By Frank F. Islam

  • 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. 

    There is also the issue of India’s own trade war with China. Tensions have been simmering on the India-US bilateral trade front since Trump became President, even though strategically the two countries have remained closer than ever. It began with the US announcing higher duties on Indian steel and aluminium in 2018, citing national interest. Earlier this year, Washington terminated the Generalized System of Preferences (GSP) program benefits to New Delhi, amounting to a withdrawal of $5.6 billion trade concessions given. 

    India responded by imposing higher trade tariffs on 28 American products, provoking Trump’s ire. He tweeted: "India, for years having put very high Tariffs against the US, just recently increased the Tariffs even further. This is unacceptable and the Tariffs must be withdrawn!” Trump airing his views on Twitter may not go well with Prime Minister Modi, who never likes to be seen kowtowing US diktats. In fact, Washington has long been complaining to New Delhi for more market access, lower tariffs, and strengthening protection for intellectual property rights. New reports suggest that the US is planning to launch a comprehensive and intensive investigation into Indian trade practices ahead of raising them at the World Trade Organization (WTO), with potential to make it a full-blown trade war. 

    India has imposed price caps on medical devices, such as stents and knee implants, owing to an unreasonable extraction of money by corporate hospitals, but it has not gone down well in the US. The United States is also unhappy with India’s new regulatory move that compels US credit card companies such as Visa and MasterCard to localize data storage for better compliance with government requirements in the future. Another Indian regulatory measure that irked the US is the changes it made to e-commerce rules, which affects US giants Amazon and Wal-Mart.

    India’s decision to purchase antimissile systems from Russia also has the potential to become another irritant in bilateral trade relations. India’s relations with Iran were another issue that Washington did not appreciate. However, under threat of sanctions, India has halted imports of Iranian oil. Recently, India made one concession to the US, reducing tariffs on Harley-Davidson motorcycles by half from 100 per cent to 50 per cent. However, it was not enough to please Trump, as reports indicate. With all these issues in the background, the upcoming meeting between the Indian Commerce Minister and the US Trade Representative is crucial. India, which has set its sight on emerging as a $5 trillion economy in the next five years, cannot afford to ignore the new wave of opportunities due to the developments on the US-Chinese trade front. 

    (Frank F. Islam is an entrepreneur, civic leader, and thought leader based in Washington, DC. The views expressed are personal)