"A new research report by DBS Bank’s economist Radhika Rao, says the US-China trade conflict is a golden opportunity for India to increase its trade footprint particularly in categories on which Washington has imposed tariffs on Beijing. The report lists various ways the trade war can benefit India."
A new research report by DBS Bank’s economist Radhika Rao, says the US-China trade conflict is a golden opportunity for India to increase its trade footprint particularly in categories on which Washington has imposed tariffs on Beijing. The report lists various ways the trade war can benefit India.
It debunks the narrative that the trade war does not affect India directly as it says the conflict gives a major fillip to Indian exports. As past regressing data suggests, for every one percentage point increase in global exports, India’s shipments tend to rise by half that much and vice versa.
Moreover, even though India is more exposed to the US, its overall trade balance is in deficit, led by a sizable gap with China. The trade war gives India an opportunity to increase its trade footprint in midst of the US-China trade conflict, particularly under categories on which US has imposed tariffs on China. US’s investment in India accounted for 6 per cent of total investment flows in 2019. The country has also received more investments from China. As the country eases its FDI regulations, it can now expect larger gains from China.
With no GSP, India faces highest trade restrictions
The US and China have been involved in a trade war since President Donald Trump imposed heavy tariffs on imported steel and aluminum items in March last year. President Donald Trump last week announced an extra 5 per cent duty on around $550 billion of Chinese goods after China unveiled its retaliatory tariffs on $75 billion worth of US products.
The US has initiated protectionist action against India, as the latter runs a trade surplus with the US. The nation also withdrew the favorable treatment meted under the Generalised System of Preferences (GSP) on India earlier this year. As the data from the Global Trade Alert database highlights, India is amongst the top few countries with the highest number of restricted trade practices, even after adjusting for liberalising measures.
Indian sectors most affected by the trade war
The top five sectors that have faced tightening measures in India include basic organic chemicals with over 100 interventions, followed by products of iron and steel, basic inorganic chemicals, wearing apparel, and other fabricated metal products, amongst others.
On the policy front, India has been hesitant to join multilateral trade agreements. More recently, this includes the Regional Comprehensive Economic Partnership (RCEP) – comprising of 10 ASEAN countries and their six free trading agreement partners – India, China, Australia, New Zealand, Japan and South Korea.
After a stable 1H19, the Indian rupee has weakened more than 4 per cent vs US$ in 3Q, under pressure from broad US dollar gains. It is therefore, the right time for India to exploit the situation to its advantage.