A fraught moment: U.S.-China Trade War
11, May 2019
Prelims level : Economy Mains level : Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management
Why in News:
- The U.S. and China need to take sustained steps to de-escalate tensions over tariffs
- The U.S.-China trade war has flared up again after a deceptive lull over the last few months, when both sides were trying to negotiate a
- Trump tweeted that he would raise the 10% tariff
- imposed on $200-billion worth of Chinese goods to 25%. The latest revival in tensions between the world’s two largest economies elevates the risk of a global trade war to its highest level since the first signs emerged in 2018. The increase in tariffs imposed on goods crossing international borders essentially represents a new tax on a global economy already facing a slowdown
- The International Monetary Fund trimmed its projection for global growth in 2019 to 3%, from a 3.5% forecast made in January, citing slowing momentum in “70% of the world economy”.
- Were tensions in trade policy to flare up again, it could result in large disruptions to global supply chains and pose downside risks to global growth, the IMF warned
- world economy faces the very real risk of an escalation in this trade war where other countries, including India
- it could result in U.S. job losses too as the import of Chinese parts become uneconomical for smaller businesses
- Indian policymakers would do well to closely monitor the latest escalation in trade tensions pans out for global demand and international energy prices, given that the RBI has flagged oil price volatility as a factor that would have a bearing on India’s inflation
Impact on India:
- The trade war may impact Indian economy more adversely.
- A trade war would slowdown global growth overall, worsening India’s already dismal export numbers. The biggest impact could be on the rupee which is already battling historic lows against the US The rising price of oil threatens to widen India’s current account deficit, impacting India’s macroeconomic stability. Reducing investment flows into India. However, India which runs a $51.08 billion trade deficit with China may stand to benefit. China imports 100 million metric tons of soybean which serves as protein source and feeds its food processing industry, this presents a huge opportunity for India.
- India may also seek the opportunity to reduce its own trade deficit against India may be able to gain some traction in textile, garments and gems and jewellery if Chinese exports to the US slow down.