While the world envisaged of brokering of a trade deal between the two superpowers, US and China, Trump‘s statement on Friday, May 10 2019, dashed the hopes of many. The trade discussion between both the nations, which was imminent given the previous fall out, dealt a severe blow to the ties of the two countries.
Trump in his trademark bellicose style took to Twitter to announce that US has decided to raise levies on USS$200 billion of Chinese goods to 25% from the earlier 10 %. Meanwhile the US trade representative, Robert Lighthizer,was quoted saying that “Trump’s move would subject about $300 billion worth of Chinese imports to punitive tariffs.” Following the US trade hike, the Chinese commerce ministry vowed to retaliate but did not signify any measures.
The immediate impact of the US-China trade spat on the Indian economy is the fall of the shares in sync with the tumbling Asian markets. But to credit the escalation as the sole reason would not be correct given there are factors such as the general elections (which already make the markets volatile) and the global crude oil crisis. This is further opined by Krish Subramanyam, co-head, equity advisor Altamount Capital who stated that the current market fall is “largely due to global factors.”
Having said this, there are no immediate positive and negative impact on the Indian economy. In a market-economic scenario, tariffs are just one factor impacting the bilateral trade balance that are relevant to India’s trade situation. To clarify, bilateral trade imbalances are largely impacted by macro-economic factors, which includes fiscal policies, credit cyclesand in some cases, exchange rate policies and widespread subsidies.In contrast, tariffs play a relatively minor role. Moreover, changes in the country’s overall trade balance could impact its trade with countries, but a change in trade imbalance owing to tariffs will only end up in trade diversion; diversion of products hit by tariffs to other markets.
However, the ripple effects on the global economy will be overarching wherein, a full-blown trade war could weaken investment, depress spending, unsettle financial markets and consequently spur deflation and market recession. In this aspect,an increase in the interest rate in the US could have an impact on the emerging market inflows(debt and equities market)like in the case of India.
Further, it will be a bit premature to state what sort of impact will India bear, given that economists are sticking their neck out in the event of a possible deal. This is likely, given that such a deleterious trade war could have drastic consequences, two instances being recession and lack of jobs in the US market, which could possibly cost Trump the 2020 Presidential elections.
For India, however, the opportunity lies now in boosting or restructuring its manufacturing economy, which is still at its preliminary stage, in comparison to China. The need for investment should spur India to showcase its competitive advantage and send positive signals to foreign investors. Moreover sector-specific analysis should be done to assess where India can become a competitive supplier and purchase for business, both in the US and China. Thus India will need to step up its pace of regulatory and administrative reforms to boost investors’ confidence and the opportunity is right now.
India Outbound
May 13, 2019
source https://indiaoutbound.org/india-cannot-be-immune-to-the-us-china-trade-war/
No comments:
Post a Comment