US – CHINA TRADE WAR: Taming the Dragon

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January 19, 2018
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April 19, 2018

US – CHINA TRADE WAR: Taming the Dragon



Bhagwati Prakash

The war of words going on between the US and China on the trade front,ever since the Presidential election in the US is quite likely to escalate into afull-blown trade war, as the US President Donald Trump has already slappedtari!s on $50 billion (Rs 3 lakh crore) worth of its imports from China on 22ndMarch. But, scared of loosing the lucrative American Market, China hasthough retaliated, but quite meekly, by slapping trade restrictions overAmerican goods worth mere $3 billion. China is shy of facing a full blowntrade war with the US, with which it has a trade surplus of $375 billion. So,China has the most to loose in a /erce trade war between the two. Though,the Sino-US trade and investments are so intertwined that both sides arelikely to su!er. But, the fast burgeoning trade de/cit of the US has grownfrom $100 billion in 2001 to 375 in 2017 is more unsustainable for the US,compared with the losses of a trade war.


Defensive and Compromising Posture of China

Apprehending more heavy damage from further escalation of the trade war, China wants to avert it. The Chinese Premier Li Keqing has already o!ered, before the representatives of “Fortune 500 companies”, on March 26 that he
would further expand imports from the US and also assured to pragmatically tackle friction and di!erences with US on trade-front through dialogue and negotiations. The Chinese Premier has also gently agreed that China will
further open its markets to foreign investors, including the US. Indirectly conceding the accusations of Trump government of “unfair trade practices”, China has agreed to be more :exible. According to the Forbes magazine, the
Chinese o<cials have conceded that China will now import more

semiconductors and other intermediates from American sources to balance

the trade. Li had also o!ered on March 20 of phasing out tari!s on drug imports from the US. China’s o<cial Xinhua News Agency has also takencognizance of Washington’s demand to reduce its trade surplus by at least
$100 billion. The U.S. o<cials allege, China has also acted unfairly on technology transfers and intellectual property rights.


Trade war is Perilous for Both sides

The US is also bound to su!er severely if the trade war escalates. A trade war would cramp most top-selling China-bound American exports, including automobiles, civilian aircrafts and numerous other products. American
consumers too might su!er and face a dearth of Chinese exports that they like and buy heavily today. There is a major risk for several hundreds of US companies, if China would hit back. Though, China runs at far more economic
risk than the United States. Hence, so far, China’s response to U.S. tari!s has been a mixture of indignation and bluster, and the actions taken have been fairly restrained. China, has more to lose from a sharp escalation in tari!s.
The US President Donald Trump had in its election campaign itself had threatened to impose 35 to 45% tari!s on Chinese imports, to force China into renegotiating its trade balance with the US. He had even branded the
spurt of Chinese imports as economic aggression


Deglobalisation is Imminent

This incidence of slapping tari!s by the US and China on each other’s exports is not an isolated, sudden and sporadic incidence. It is a natural fallout of the grave inequalities that have perpetuated in trade, investment and job-
creations across the globe, out of deep globalization forced by rich countries since the early 90s, aimed at elimination of geo-political barriers in the way of their trade and investments. Consequently, today more than 85 percent of
the world manufacturing has got concentrated with China, US, EU, Japan, Korea and Taiwan (i.e. among these 33 out of 230 countries of the World, as per UNCTAD). China alone has captured 22.5% share in world manufacturing
followed by the US – 17.5%, Japan 10%, Germany 7%, and so on. The industrialized nations have pursued deep globalization to capture the markets, manufacturing and investment opportunities in around 200 developing and other countries. Bharat too has badly su!ered, which now has a mere 2.1% share in world manufacturing. The MNCs, after taking over the manufacturing sector in India have shifted technology intensive activities out of country and have been running only their assembly lines. But, now China turned the tables has against the industrialized countries and has begun to :ood the markets of all the industrialized countries with Chinese goods. So, the rich nations ranging from Singapore, Britain, EU and US are poised for deglobalization by raising barriers in free movement of people as well as goods. Bharat had to bring down its import tari!s manifold and had to dismantle the phased indigenization programme as well as the dividend balancing clause. All of these have a!ected domestic manufacturing as well as balance of payments.


Our Gain from Trade War

Bharat has greater ‘real’ trade de/cit with China, then the US. The US de/cit at $375 billion is only 1.87% of the American G.D.P. But, our trade de/cit with China is 2.25% of our GDP for 2016-17, and is slated to grow in 2017-18, which has exceeded over $30 billion in the /rst six months of 2017-18, against a twelve months’ de/cit of $51b in 2016-17. In the aftermath of the Sino-US trade war, the Chinese appear to have learnt a lesson and have
turned more agreeable for our demand for redressing the trade de/cit of Bharat as well. So, inspite of the anti-dumping duties slapped by Bharat, mostly by the NDA Government on as many as 98 products, China is readily
agreeing to further curb its trade surplus with Bharat. So, now when China is facing a tari! war with the US, it has turned softer with Bharat and has also openly conceded of having unjust trade surplus with Bharat, and has also
very gently agreed to curb this vast Sino-Indian trade de/cit only recently on this March 26. The Chinese government, under pressure of a looming trade
war with the US is now more readily agreeing that the massive imbalance in its trade with India is “unsustainable” for long-term trade growth, and is also agreeing that it needs to be addressed. It was a major trade victory for
Bharat, when on March 26, visiting Chinese Commerce Minister Zhong Shan shared this sentiment. He has clearly stated this, after his meeting in the commerce and industry ministry, and even welcomed Indian investments
in China. It has promised to fully address the trade de/cit of India. So, it is the time, when Bharat can secure a more balanced and accommodative Chinese response, in the aftermath of the escalating Sino-US trade war