US and China trade war- Boon in the hindsight for India?

May 23rd,2019 will be marked as the day when a non-congress government has been elected for consecutive second term for the 1st time in the history of India.

Elections, New Delhi, India - 23 May 2019

Second term of Modi government will be successful or not that only time will tell depending on the actions taken by his government or the external factors prevailing during that time such as US-China trade wars.

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America was an imperial country during its war on Vietnam and seems like those days have returned as it has started trade war with China.

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Good head winds may not be there for the economical growth but then it also depends on what policy or strategic moves are done to extract maximum out of the above situation.

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US recession seems to be looming over our heads. 3 months Government bond value is currently higher compared to the 15 year long term bond. The scenario in the ideal condition should be other way around but conditions are not ideal.

Theresa May has resigned as PM of Great Britain. European nations are already reeling under slow down. IMF revised Europe growth forecast from 1.9% to 1.6% and that forecast is also on optimistic side.

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Chinese economic data is also not very encouraging. Production of cars is shrinking in China and its exports are also reducing. Chinese economy contributes 19% of the words economy.It’s share is 16% in India’s import and 4.39% in exports.

Amidst all this Washington has levied sanctions on goods sourced from China and China has retaliated by doing the same to US goods by increasing Tariffs by 20 to 25%.

Due to this US companies are left with no choice but to source their products from India,Thailand,Cambodia,Indonesia and Turkey.

India might also be on the same path if GSP (US trade preference program) benefits are removed. But can this Trade war also be a boon on the hindsight for India ??

Well may be, if following steps are taken by Indian government to get more access to both the Chinese and US markets.

Strategies for Trade with Chinese can be as mentioned below.

  • China is a net importer for agricultural produce. We have already increased Rice , Sugar and sesame seeds export to China. Soy bean can be next. Alcoholic beverages and ready made garments can also benefit from it. But for this our policies need to be more consistent. Rather then stopping export during price increase we can look at importing those produces. Indian export to China in 2018 stand at $ 18.84 billion with 15.2% increase year on year basis.
  • We should motivate more Chinese/US companies to move their manufacturing bases here contributing to increase in export. Technology intensive companies such as Mobiles , electronics, textiles, consumer appliances, health care and heavy industry equipment can be attracted by showcasing large consumer market and working population.
  • We should put more focus on value added products rather then just supplying raw materials and chemicals.
  • Better market access for Indian generic drug manufacturers by asking removal of entry barriers. An interface between Food and Drug of both the countries can be established.
  • Reduction in landing interest rates for setting up / expanding manufacturing plants of above products can help us further to reduce trade deficits.

The commerce ministry has already proposed a strategic paper with some of the above recommendations.

Strategies for Trade with US can be as mentioned below.

  • Shrimps and sea food produce from India can be exported to US as a substitute to Chinese produce. We are already in a dominating positions for Shrimps. $ 2.3 Billion are FY 18 nos for Seafood exports to US with flagship item of frozen shrimp.
  • In exchange for relief on GSP status we can assure US of decreased Tariffs on their Home grown products and services such as High end Mobile phones such as Apple iPhones.

The direct replacement of Chinese produce will be difficult for Indian companies as we export raw material, pharmaceuticals, minerals and semi-finished goods to US while China exports finished goods,electronics, toys, plastics etc.

Other measures can be as mentioned below.

  • Taking measures to improve our standing in World Bank’s Ease of Doing Business index. Other countries such as Thailand (27), Vietnam (69),Indonesia(73) and Malaysia (15) ranks higher compared to India(77).
  • Providing more incentives for foreign investments along with lower costs.
  • Ease of RBI regulations such as transfer or acquisition of  immovable properties in India by citizens of other nations especially China.

Imports to India from US stood at 28% increase last year compared to previous year. This can help us get what we want from US government considering that we play our cards right. It is imperative that we do that as we are expecting 0.8% decrease in world economy growth in 2020 as per IMF.

Let’s see what the coming time brings for us.

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