India must rethink strategy

Sino-US Trade War

By Shivaji Sarkar

The trade war between the US and China has a neutral victim in India. The escalation is likely to hurt India, forcing it to look for alternative markets as the trade growth globally may get hit.
India, though had a feeling of bettering relations with the US, is worried as the Americans slap 25 per cent tariff on steel and 10 per cent on aluminium imports. The Trump administration exempted EU, Australia, Argentina, Brazil, Canada, Mexico and South Korea. But India is not in that list.
This has led India to mull over moving to WTO dispute resolution committee to challenge the US duty hike. The issue becomes important as the US is also threatening to drag India to WTO for a number of export promotion schemes. The US says India is subsidising exports of a number of goods.
The US moves are likely to hit handicraft, handloom and garment and some farm goods exports.
China has already moved the WTO forum against US duties on steel and aluminium. A powerful US, however, has weakened the WTO on many issues. It has also made the UN having a less effective look.
India is going through a difficult patch. The global GDP was valued at $75.3 trillion. The US has $19.4 trillion economy and China $11.9 trillion. Currently India’s economy is estimated at $2.5 trillion. The IMF recently forecast a global trade growth but as the situation deteriorates, it may have to downgrade its projections.
The situation is slowly becoming critical. Indian exports may get hit and much to the chagrin of the US, India in many ways may get closer to China. As President Donald Trump imposes heavy tariffs on Chinese goods, India looks to the opportunity of trebling its cotton exports to China in the wake of 25 per cent import tax on 106 commodities, including cotton, from the US.
This might lead India to change strategies despite its own battle against Chinese goods. Indian cotton traders are keen on increasing the sale from 800,000 bales to about 2 million bales, each of 170 kg to China in the season beginning October. If it happens, Indian cotton farmers will get better price. China so far is dependent on the US cotton and also imports it from Brazil and Australia. But the latest Chinese indirect negotiations with the US may finally reduce Indian benefits.
China wants to increase its trade with India but while it comes to imports it restricts it to raw materials largely. Indian cotton is also one such item.
India has to tread cautiously on many other areas, including its tyre industry. The US sanctions may hit Chinese automobile and aircraft tyre exports. The 17 per cent fall in rubber prices at Tokyo commodity exchange and about 24 per cent fall in Indian domestic market is an indicator of another crisis.
It may lead to glut in Chinese markets and consequent dumping at throwaway prices in India and other Asian markets. It can lead to a crisis for the Indian tyre manufacturers though exports are increasing at 6 to 8 per cent and occasionally at a higher rate.
So far, the anti-dumping duty in India is keeping Chinese imports that had hit the Indian tyre manufacturers at bay. But there are possibilities of tweaking grades of tyres to circumvent the tariff classification. Once again India would have to move the WTO even as it fights the largest number of anti-dumping cases against China.
Indian tyre industry is thriving on domestic auto market boom. As international players dot the country, its tyre industry has established brand equity overseas. The industry earns about 15 per cent of its annual turnover of around Rs 50,000 crore from exports, according to Automotive Tyre Manufacturers Association. An imbalance in international market can hit it.
Similar cycle of retaliations may mark the WTO and hit trade growth, says WTO Director General Roberto Azevodo. His comments came as he released forecast of 4.4 per cent growth in trade volume in 2018 and 4 per cent in 2019. The world economy showed growth after seven years since 2011. Azevodo noted that uncertainties were rising again with rising protectionism, a hint to the US dumping of $50 billion duties on Chinese goods and similar retaliatory action by China.
The WTO warned that global progress could be undermined if protectionist move increases. But it is bound to increase. India is not in a happy situation vis-a-vis China and with the US too now it is having problem. The EU has also grown protectionist.
India’s trade deficit with China stood at $51.08 billion in 2016-2017. The India-China total trade was at $71.48 billion. It has ten-fold increase in a decade. Electronics, machines and chemicals lead Chinese exports to India, while India sends China mainly cotton, copper and precious metals.
China has failed in its promises to ease market access to India’s farm produce, IT goods and pharmaceutical products. Chinese exports to India are 2.8 per cent of its total exports in 2016, for India it is 17 per cent of its total exports.
India’s ‘Make in India’ has helped it marginally but it has hit the domestic consumers as the stoppage of cheap imports has increased domestic prices.
The tough and not so favourable approach of Trump is another zone of discomfort. Unlike his predecessor Barak Obama, he has little sympathy for India. Howsoever, India may expect its support, the recent US decision to restrict visa to professionals is pinching the IT industry.
The appointment of John Bolton, known for his opposition to India’s entry to UN Security Council, as National Security Advisor may further delay India’s chances. He is hardliner and is known to be against the UN having an effective role in global issues.
In such scenario, India has to reposition itself. The recent defence exposition in Chennai and efforts to have a say in the global arms business by Prime Minister Narendra Modi helps keep up the ante. Marketing of arms, security and other such equipment could keep India at a different level. But it is a beginning for the country and would create a new scenario in a decade. It also emphasises that India has to change its international and export strategy to become an effective player in international affairs and protect its trade. –INFA