Trade War (USA-China) Impact on India

Prelims level : Mains level : GS - II Effect of policies and politics of developed and developing countries on India’s interests
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Timeline of trade war:

  • President Trump  placed  a  30%  tariff  on  foreign solar  panels on  January,  2018,  mainly targeting Chinese exports.
  • The USTR initiates an investigation into certain acts, policies and practices of the Chinese government relating to technology transfer, intellectual property and innovation.
  • USA explored the opportunity of putting tariffs over Chinese products and imposed the proposed tariffs  stating  it  as  a  response  to  the  unfair  trade  practices  of  China  over  the years including theft of U.S. intellectual property
  • In March, import duties of 25 per cent and 10 per cent on steel and aluminium respectively on USA import.
  • The US-China  trade  war  officially  started  with  both  nations  slapping  tariffs  worth  $34 billion on each other’s exports in June
  • China reacted listing down its plans to counter the US decision by hitting the American exports with  25  percent    The  proposed  package  targeted  over  100  US-made products, including cars, airplanes, and soybeans, the top US agricultural export to China, covering $50 billion worth of US exports
  • The problem  with  the  tactic  of  weaponizing  tariffs,  however,  is  that  this  artillery  leaves huge collateral damage in its wake and the outcome is nearly impossible to control in an integrated global economy

Impact on India causing threats: / Rupee:

  • 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 and weakening the rupee.
  • The US  Federal  Reserve  is  already  poised  to  end  its  quantitative  easing  policy  and  has embarked on gradual hiking of interest rates, encouraging flight of capital from debt and equity markets in emerging economies. The trade war will put the process on steroids.

Stock market:

  • Inflation in the USA may compel the US Federal Reserve to hike interest rates, and this may lead to capital outflow from emerging markets as American investors look to chasebetter returns back home and in the process, they make the Indian market into a squeeze


  • India is obviously one of those countries with higher exposure to commodities, especially oil imports,  so  it  will  widen  the  current  account  deficit  into  a  deeper  stretch  and  this  is basically negative for rupee
  • Consequently, our petroleum products exports will become uncompetitive with rising fuel price
  • Steel and aluminium product export from India to USA will be hit due to USA tariff on it


  • Inflation will be on the upswing with increase in oil price, even though oil price rise is not related to trade war.
  • Nonetheless increase in oil price will cause increase in price of daily food needs in India
  • Our exports plus imports of goods and services constitute around 42% of GDP. Also, we have a current account deficit dependent on external capital inflows for financing.
  • Dumping of Chinese goods may happen in future due to closing of gate in USA and this may hurt our manufacturing sector and our ambitious “Made in India” project.
  • Foreign investments may be reduced or investors will be cautious to invest in India due to trade war and this will affect job creation


  • USA trade war on the world is likely to cause a strain on the relationship between India and USA because of recent forcing of USA president towards India to reduce the import duty on Harley Davidson bikes in India
  • It may bolster India’s bargaining position with respect to USA because of USA reactionary policies towards  china,  the  china  and  Russia are getting  closer  and  also  the  growing Russia  Pakistan  bilateral  relations,  is  evident  in  first  bilateral  military  exercise  between Russia and Pakistan –DRUZBHA held recently, will isolate the USA in south Asia leaving only India as a only lynchpin against china in “Asia pivot policy”

International Institutions:

  • International institutions are also affected by this war like WTO,
  • USA threatened to withdraw from the WTO if the trade body acts against USA interests. This undermines the reputation and also destabilize the WTO position in global order.

Impact on India causing opportunities:

  • In the short to medium term, the US-China trade tussle presents some opportunities. India has a $51.08 billion trade deficit with China may benefit
  • China imposed  levies  on  US  goods  such  as  soybean  and  simultaneously  removes  them from  Indian    Beijing  has  reportedly  slashed  tariffs  on  soybean  imported  from India,  South  Korea,  Bangladesh,  Laos,  and  Sri  Lanka  from  the  current  three  percent  to zero, which may boost our soybean export to china
  • Some experts are cautiously optimistic that if Chinese exports to the US slow down as a result of the trade war, India may be able to gain some traction in textile, garments and gems and jewellery
  • It may  also  create  an  market  opportunity  for  India  in  Europe  as  USA  is  also  imposing tariffs on Europe also.

Geopolitical Implication:

  • India may  also  seek  the  opportunity to  reduce  its  own  trade  deficit  against    And, also take the relations to a new height. of late, India and China have taken conciliatory and coordinated steps on stabilizing bilateral ties.
  • While China has made  it  easier  for  India  to  export  non-Basmati  rice,  removed  import duties on anti-cancer drugs and agreed to share (hydrological) data and
  • India has also moved to allay its fears on Indo-Pacific policy, put subtle distance between Delhi and the Dalai Lama, given license to Bank of China to operate within its shores and given in to Chinese demands on renaming of Taiwan


  • If anything, that history teaches us on trade war means that there is no winner but always losers
  • With recovering of global economy is in nascent stage after the 2008 sub-prime crisis, this trade war between the two large economies could derail the global economic growth and also badly hurt the developing countries
  • Moreover, there are forums like WTO to deal with trade disputes and both USA and china should deal this through WTO and negotiations not through retaliatory tariffs.
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