Economy

India not to be directly affected by US-China deal as it gained little from the fight

Amiti Sen New Delhi | Updated on January 16, 2020 Published on January 16, 2020

File photo   -  GREG BAKER

It could benefit from a possible turnaround in world economy, but some doubt if India has the competitive strength

India is unlikely to be directly affected by the US-China trade deal signed on Wednesday as the country gained little from the almost two-year old trade war between the two trading giants.

But, if the hard-negotiated pact goes beyond the first phase and is implemented in spirit by both nations, India could benefit from an overall improvement in sentiments and performance of world trade. However, there are some, who argue that India seems to lack the competitive strength to take advantage of a global turnaround.

High tariffs

“There was opportunity for India to gain from the trade war between the US and China as the two countries imposed high tariffs on a large number of items imported from each other. But due to a multitude of reasons, including lack of adequate manufacturing capacity in the country, Indian producers could hardly benefit from it. It was mostly Vietnam which got increased business. So, if the US and China are now on the path to end their dispute, it will not directly affect India,” an official told BusinessLine.

Moreover, as per the pact, tariffs on $120 billion worth of goods would be halved, but much of the higher duties on about $360 billion of Chinese exports to the US and more than $100 billion of US exports to China would stay.

China has also committed to increase its purchases in manufacturing, services, agriculture and energy from 2017 levels by $200 billion over two years and that could include $ 50 billion worth of agricultural goods a year. But that should also not be a reason for worry for India’s exporters.

India and China have been in talks since the trade war started for increased purchases by Beijing of commodities such as soybean which it had been mostly buying from the US. But it did not actually result in much increase in exports from India. So, a resumption of farm goods purchases by China from the US is not likely to hurt India.

US presidential elections

Also, China has said that its increased purchases from the US would also depend on the demand situation, which gives it an option to exit from its commitment if needed.

With US Presidential elections scheduled in November, the US-China truce could be Trump’s attempt to appease the US voter who has been hit by the trade war. As per estimates of the Congressional Budget Office, tariff-related uncertainty and costs have lowered US economic growth by 0.3 per cent, while reducing household income by an average of $580 since 2018.

According to the International Monetary Fund, has been growing at its slowest pace since the financial crisis. In projections made in October 2019, IMF said that world growth would touch about 3 per cent this year, indicating a significant slowdown compared to two years ago.

If the world growth picks up due to a fall in trade tension between US and China and it in turn fuels global trade, India could benefit from it. But some doubt that it would happen. “India lacks the competitive strength to take advantage of a possible turnaround in world trade. Exports have been falling for the last five months. But the government seems to be only interested in plugging imports,” said Biswajit Dhar, Professor, JNU.

Published on January 16, 2020
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