As the two biggies try to even out their trade balance, Bharat can quietly gain from the situation
Bhagwati Prakash
The war of words going on between the US and China on the trade front, ever since the Presidential election in the US, is quite likely to escalate into a full-blown trade war, as the US President Donald Trump has already slapped tariffs on $50 billion (Rs 3.25 lakh crore) worth of its imports from China. But, scared of losing the lucrative American Market, China has initially declared counter tarrifs at over American goods worth mere $3 billion. China is shy of facing a full-blown trade war with the US, with which it has a trade surplus of $375 billion. So, China has the most to lose in a fierce trade war between the two. The Sino-US trade and investments are so intertwined that both sides are likely to suffer. The fast burgeoning trade deficit of the US has grown from $100 billion in 2001 to 375 in 2017 which is more unsustainable for the US, compared to the losses of a trade war.
Compromising China
Apprehending more heavy damage from further escalation of the trade war, China wants to avert it. Chinese Premier Li Keqiang has already offered, before the representatives of “Fortune 500 companies”, on March 26 that he would further expand imports from the US and has also assured to pragmatically tackle friction and differences with the US on the trade front through dialogue and negotiations. The Chinese Premier has also gently agreed that China will further open its markets to foreign investors, including the US. Indirectly conceding the accusation of the Trump government of resorting to “unfair trade practices”, China has agreed to be more flexible. According to the Forbes magazine, the Chinese officials have conceded that China will now import more semiconductors and other intermediates from American sources to balance the trade. Li had also offered on March 20 of phasing out tariffs on drug imports from the US. China’s official Xinhua News Agency has also taken cognizance of Washington’s demand to reduce its trade surplus by at least $100 billion. The US officials allege China has also acted unfairly on technology transfers and intellectual property rights.
Perilous Trade war
The US is also bound to suffer severely if the trade war escalates. A trade war would cramp most top-selling China-bound American exports, including automobiles, civilian aircraft and numerous other products. There is a major risk for several hundreds of US companies if China hits back. Though China runs a far more economic risk than the United States, China’s response to US tariffs has been a mixture of indignation and bluster, and the actions taken have been fairly restrained. China has more to lose from a sharp escalation in tariffs. The US President Donald Trump had in its election campaign itself threatened to impose 35 to 45 per cent tariffs on Chinese imports, to force China into renegotiating on trade balance with the US. He had even branded the spurt of Chinese imports as economic aggression.
Deglobalisation is Imminent
This incidence of slapping tariffs by the US and China on each other’s exports is not an isolated, sudden and sporadic incidence. It is a natural fallout of the grave inequalities that have perpetuated in trade, investment and job-creation across the globe, out of deep globalisation forced by rich countries since the early 90s, aimed at the elimination of geopolitical barriers in the way of their trade and investments. Consequently, today more than 85 percent of the world manufacturing has got concentrated with China, US, EU, Japan, Korea and Taiwan (i.e. among these 33 out of 230 countries of the World, as per UNCTAD). China alone has captured 22.5 per cent share in world manufacturing followed by the US—17.5 per cent, Japan 10 per cent, Germany 7 per cent, and so on. The industrialised nations have pursued deep globalisation to capture the markets, manufacturing and investment opportunities in around 200 developing and other countries. Bharat too has badly suffered, which now has a mere 2.1 per cent share in world manufacturing. The MNCs, after taking over the manufacturing sector in India have shifted technology intensive activities out of the country and have been running only their assembly lines. But, now China has turned the tables against the industrialised countries and has begun to flood the markets of all the industrialised countries with Chinese goods. So, the rich nations ranging from Singapore, Britain, EU and US are poised for deglobalisation by raising barriers in free movement of people as well as goods. Bharat had to bring down its import tariffs manifold and had to dismantle the phased indigenisation programme as well as the dividend balancing clause. All of these have affected domestic manufacturing as well as the balance of payments.
Bharat’s Gain
Bharat has greater ‘real’ trade deficit with China, then the US. The US deficit at $375 billion is only 1.87 per cent of the American GDP. But, our trade deficit with China is 2.25 per cent of our GDP for 2016-17, and is slated to grow in 2017-18, which has exceeded over $30 billion in the first six months of 2017-18, against a twelve months’ deficit of $51b in 2016-17. In the aftermath of the Sino-US trade war, the Chinese appear to have learnt a lesson and have turned more agreeable to our demand for redressing the trade deficit of Bharat as well. So, now when China is facing a tariff war with the US, it has turned softer with Bharat and has also openly conceded of having an unjust trade surplus with Bharat, and had also very gently agreed to curb this vast Sino-Indian trade deficit only recently on this March 26. The Chinese government, under pressure of a looming trade war with the US, is now more readily agreeing that the massive imbalance in its trade with India is “unsustainable” for long-term trade growth, and is also agreeing that it needs to be addressed. It was a major trade victory for Bharat when on March 26, visiting Chinese Commerce Minister Zhong Shan shared this sentiment. He has clearly stated this, after his meeting in the Commerce and Industry Ministry, and even welcomed Indian investments in China. It has promised to fully address the trade deficit of India. So, it is the time, when Bharat can secure a more balanced and accommodative Chinese response, in the aftermath of the escalating Sino-US trade war.
(The writer is a vice-chancellor, Pacific University, Udaipur)
