US-China trade war: Caught in the crossfire, India may have to stoop to conquer

US President Donald Trump’s animus and grudge is against China with which the United States has had a mind-boggling trade deficit of $375 billion in 2017 what with exports to China at only $130 billion as opposed to the huge import of $505 billion. To Trump, this was infradig, and he vowed, in his Presidential election campaign, to fight this skew with every ounce of energy in his command. He also vowed to fight the Chinese currency manipulation which enabled it to outcompete others besides making Chinese imports cheaper in the USA vis-à-vis domestic production. Yes, Trump’s trade war is against China but as it happens other countries including India are caught in its crossfire.

Or so it seems because there are signs of thaw what with the Indian government going public with an announcement that its proposed hike on import duties on 29 items from the US may be withdrawn if the differences between the two nations are resolved amicably.  It may be recalled India had slapped a retaliatory tariff hike to match the US tariff hike of $240 million a few days ago.

Any threat of tariff hike under the garb of ‘national security’ is a thinly disguised alibi to protect domestic turf.  It is amazing that the US President has been able to get away with this alibi before the World Trade Organisation (WTO) which has to be kept notified of any anti-free trade moves by the member countries.

But then it is common knowledge that the WTO is an effete trade body that countenances weak alibis like national security without batting an eyelid at member states.  It is therefore not amusing to find retaliatory measures by both China and India too have been justified on the same touchstone---national security.  Of course, everybody knows it is only grandstanding.

Representational image. Reuters

Representational image. Reuters

The United States imports consumer electronics, clothing, and machinery from China. A lot of the imports are from US manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the US, they are considered imports.

The US President can only huff and puff because whereas China gets away with what is considered by the US as starvation wages, the US labour considers it infra dig to work at such low wages.  Thus the twin strategy of China has been to undervalue its currency and keep its production cost low so as to outcompete everyone.  Small wonder ‘Made in America’ which should swell the chest of every patriotic American is not to be with ‘Made in China’ a common sight in the US stores.  Peeved, the US government has imposed stiff tariffs on as much as  $30 billion of imports with steel attracting a stiff  25 percent and aluminum 10 percent.

Reverting to India, as many as 3,500 Indian products from sectors such as chemicals and engineering get duty free access to the US market under the Generalised scheme of preferences  (GSP) introduced in 1976.  But with one stroke of petulance, the US undid it a few days ago.  Mercifully, there is a hope that when passions cool down things will be back to normal.  India is pressing for exemption from high duty imposed by the US on certain steel and aluminum products, resumption of export benefits to certain domestic products under their GSP, greater market access for its products from sectors, including agriculture, automobile, auto components and engineering.

The US will, of course, demand its pound of flesh---greater access to Indian armaments import market as well as to the agricultural products market.  US has a thriving food and food products industry.  Naturally, it is trying to prise open the vast Indian market but that has grave implications for our farmers.  We have to do a fine tightrope walk but with the trade deficit not as high as with China---India has a trade surplus of just $21.2 billion with exports to the US in 2017-18 standing at $47.9 billion, while imports were $26.7 billion. It is not as alarming a situation.  We may have to stoop to conquer.  We were caught in the crossfire but with deft handling we can duck its impact.

(The writer is a senior columnist and tweets @smurlidharan)


Updated Date: Jun 30, 2018 11:42 AM

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