US – CHINA TRADE WAR: Taming the Dragon
April 19, 2018
Taming the Dragon
April 21, 2018


Locking Horns

war of words going on between theUS and China on the trade front, eversince the Presidential election in theUS, is quite likely to escalate into afull-blown trade war, as the USPresident Donald Trump has alreadyslapped tariffs on $50 billion (Rs 3.25lakh crore) worth of its imports fromChina. But, scared of losing thelucrative American Market, China hasinitially declared counter tarrifs at overAmerican goods worth mere $3 billion.China is shy of facing a full-blowntrade war with the US, with which ithas a trade surplus of $375 billion. So,China has the most to lose in a fiercetrade war between the two. The Sino-US trade and investments are sointertwined that both sides are likely tosuffer. The fast burgeoning tradedeficit of the US has grown from $100billion in 2001 to 375 in 2017 which ismore unsustainable for the US,compared to the losses of a trade war.


Compromising China


Apprehending more heavy damagefrom further escalation of the tradewar, China wants to avert it. ChinesePremier Li Keqiang has alreadyoffered, before the representatives of“Fortune 500 companies”, on March26 that he would further expandimports from the US and has alsoassured to pragmatically tacklefriction and differences with the USon the trade front through dialogueand negotiations. The ChinesePremier has also gently agreed thatChina will further open its markets toforeign investors, including the US.Indirectly conceding the accusationof the Trump government of resortingto “unfair trade practices”, China hasagreed to be more flexible. Accordingto the Forbes magazine, the Chineseofficials have conceded that Chinawill now import more semiconductorsand other intermediates fromAmerican sources to balance thetrade. Li had also offered on March20 of phasing out tariffs on drugimports from the US. China’s officialXinhua News Agency has also takencognizance of Washington’s demandto reduce its trade surplus by at least$100 billion. The US officials allegeChina has also acted unfairly ontechnology transfers and intellectualproperty rights.


Perilous Trade war

The US is also bound to sufferseverely if the trade war escalates. Atrade war would cramp most top-selling China-bound Americanexports, including automobiles,civilian aircraft and numerous otherproducts. There is a major risk forseveral hundreds of US companies ifChina hits back. Though China runsa far more economic risk than theUnited States, China’s response toUS tariffs has been a mixture ofindignation and bluster, and theactions taken have been fairlyrestrained. China has more to losefrom a sharp escalation in tariffs. TheUS President Donald Trump had inits election campaign itselfthreatened to impose 35 to 45 percent tariffs on Chinese imports, toforce China into renegotiating ontrade balance with the US. He hadeven branded the spurt of Chineseimports as economic aggression.

Deglobalisation is Imminent


This incidence of slapping tariffs bythe US and China on each other’sexports is not an isolated, sudden andsporadic incidence. It is a naturalfallout of the grave inequalities that


have perpetuated in trade, investmentand job-creation across the globe, outof deep globalisation forced by richcountries since the early 90s, aimedat the elimination of geopoliticalbarriers in the way of their trade andinvestments. Consequently, todaymore than 85 percent of the worldmanufacturing has got concentratedwith China, US, EU, Japan, Korea andTaiwan (i.e. among these 33 out of230 countries of the World, as perUNCTAD). China alone has captured22.5 per cent share in worldmanufacturing followed by the US—17.5 per cent, Japan 10 per cent,Germany 7 per cent, and so on. Theindustrialised nations have pursueddeep globalisation to capture themarkets, manufacturing andinvestment opportunities in around200 developing and other countries.Bharat too has badly suffered, whichnow has a mere 2.1 per cent share inworld manufacturing. The MNCs, aftertaking over the manufacturing sectorin India have shifted technologyintensive activities out of the countryand have been running only theirassembly lines. But, now China hasturned the tables against theindustrialised countries and hasbegun to flood the markets of all theindustrialised countries with Chinesegoods. So, the rich nations rangingfrom Singapore, Britain, EU and USare poised for deglobalisation byraising barriers in free movement ofpeople as well as goods. Bharat hadto bring down its import tariffs manifoldand had to dismantle the phasedindigenisation programme as well asthe dividend balancing clause. All ofthese have affected domesticmanufacturing as well as the balanceof payments.

Bharat’s Gain

Bharat has greater ‘real’ trade deficitwith China, then the US. The USdeficit at $375 billion is only 1.87 percent of the American GDP. But, ourtrade deficit with China is 2.25 percent of our GDP for 2016-17, and isslated to grow in 2017-18, which hasexceeded over $30 billion in the firstsix months of 2017-18, against atwelve months’ deficit of $51b in 2016-17. In the aftermath of the Sino-UStrade war, the Chinese appear to havelearnt a lesson and have turned moreagreeable to our demand forredressing the trade deficit of Bharatas well. So, now when China is facinga tariff war with the US, it has turnedsofter with Bharat and has also openlyconceded of having an unjust tradesurplus with Bharat, and had also verygently agreed to curb this vast Sino-Indian trade deficit only recently onthis March 26. The Chinesegovernment, under pressure of alooming trade war with the US, is nowmore readily agreeing that themassive imbalance in its trade withIndia is “unsustainable” for long-termtrade growth, and is also agreeing thatit needs to be addressed. It was amajor trade victory for Bharat when onMarch 26, visiting Chinese CommerceMinister Zhong Shan shared thissentiment. He has clearly stated this,after his meeting in the Commerceand Industry Ministry, and evenwelcomed Indian investments inChina. It has promised to fully addressthe trade deficit of India. So, it is thetime, when Bharat can secure a morebalanced and accommodativeChinese response, in the aftermath ofthe escalating Sino-US trade war