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 lakh crore) worth
of its imports from China on 22nd March. But, scared of loosing the lucrative
American Market, China has though retaliated, but quite meekly, by slapping
trade restrictions 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 loose in a fierce trade war between the
two. Though, the Sino-US trade and investments are so intertwined that both
sides are likely to suffer. But, the fast burgeoning trade deficit of the US
has grown from $100 billion in 2001 to 375 in 2017 is more unsustainable for
the US, compared with the losses of a trade war.
Defensive and Compromising Posture of China
Apprehending more heavy damage from further
escalation of the trade war, China wants to avert it. The Chinese Premier Li
Keqing has already offered, before the representatives of “Fortune 500 companies”,
on March 26 that he would further expand imports from the US and also assured
to pragmatically tackle friction and differences with US on 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 accusations of Trump government of "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 U.S. officials
allege, China has also acted unfairly on technology transfers and intellectual
property rights.
Trade war is Perilous for Both sides
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 aircrafts and
numerous other products. American consumers too might suffer and face a dearth
of Chinese exports that they like and buy heavily today. There is a major risk for
several hundreds of US companies, if China would hit back. Though, China runs at
far more economic risk than the United States. Hence, so far, China's response
to U.S. 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 had threatened to impose 35 to 45% tariffs on Chinese imports,
to force China into renegotiating its 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-creations across the globe, out of
deep globalization forced by rich countries since the early 90s, aimed at
elimination of geo-political 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% share in
world manufacturing followed by the US - 17.5%, Japan 10%, Germany 7%, and so
on. The industrialized nations have pursued deep globalization 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%
share in world manufacturing. The MNCs, after taking over the manufacturing
sector in India have shifted technology intensive activities out of country and
have been running only their assembly lines. But, now China turned the tables
has against the industrialized countries and has begun to flood the markets of
all the industrialized countries with Chinese goods. So, the rich nations
ranging from Singapore, Britain, EU and US are poised for deglobalization 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
indigenization programme as well as the dividend balancing clause. All of these
have affected domestic manufacturing as well as balance of payments.
Our Gain from Trade War
Bharat has greater ‘real’ trade
deficit with China, then the US. The US deficit at $375 billion is only 1.87%
of the American G.D.P. But, our trade deficit with China is 2.25% 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 for our demand for redressing
the trade deficit of Bharat as well. So, inspite of the anti-dumping duties slapped
by Bharat, mostly by the NDA Government on as many as 98 products, China is readily
agreeing to further curb its trade surplus with Bharat. 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 unjust trade surplus with Bharat, and has 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.
