Impact of China-US trade battle

Subrata Majumder

Notwithstanding US President Donald Trump’ climb-down on One China policy, tension brews over the Sino- USA trade and investment. It is unlikely that Trump’s assurance to follow 40 years USA’s One China policy will soothe the relation and retrieve the normal trade relation. Though the White House statement viewed Trump’s direct telephonic call to President Xi Jinping very cordial and ensuring for a substantial dialogue between Washington and Beijing to re-rail the ties, normalization of trade tension is a far cry. China is the trigger for USA’s wide trade deficit. It accounts for 48 per cent of USA‘s global trade deficit and causing a big damage to the American jobs opportunities.
Under Trump era, trajectory of global growth will change. It will tender a challenge between globalization and protectionism, or say, anti-globalization. While Trump administration is bent to make protectionism as the pillar for America Great and eventually be a trend for global growth, China has to propel up globalization against protectionism. His carrot and stick policy to bring back US big houses affirm his penchant for anti-globalization.
Protectionism is the precursor for inclusive growth. And, inclusive growth is against the vertical growth of multi-nationals who achieved high profits through their global operations. MNCs bring capital, brand, technology and management from headquarters in rich world and produce in emerging nations using cheap labour and raw materials under the lighter rules of pollution
Trump’s import substitution approach through tariff barriers and encouraging domestic production through corporate tax incentives will play hardball for Chinese growth. Trump’s threat to impose 45 per cent tariff on Chinese goods will stir up a trade war between USA and China.
China vowed to initiate retaliatory measures. But, given the trade powers of both countries in their respective economies, it suggests that China will be in a weaker position in the race. While USA shares 18 per cent of China’s export, China accounts for just 7 per cent of American exports. USA is much wealthier and stronger than China. USA has bigger space to withstand China’s retaliation. This means that China will be a looser in terms of export, resulting loss of thousands of Chinese jobs, in the retaliatory bout.
Trump’s bowing to One China policy should not be viewed dilution of his stance on trade restrictions, pledged in the campaign. According to Director of the Centre for American Studies, Fudan University, Wu Xinbo “With Trump taking office, China is sure to have friction with USA. Trump will turn the heat on China over trade issues to fulfill his campaign promises”
The trade tussle between USA and China will prove windfall to India. Like USA, India is a big sufferer of Chinese dumping of goods. Dumping intensified after China was shackled by over capacity. Chinese dumping is the main cause for India’s wide trade deficit. China accounts for 44 per cent of India’s trade deficit with world. India took several measures to nail Chinese dumping to protect its domestic industries, but failed to decimate Chinese aggressiveness.
In the run up, Trump’s threat for high tariffs on Chinese dumping will be a shot in the arm to India. Trump’s threat, if spelt out in action, will flex India’s muscle to debilitate the Chinese aggressiveness to dump in the Indian market.
Convergence of USA and India will play a double action to debilitate Chinese aggressiveness. It may nudge Chinese corporates to have second thoughts for doing business with India by dumping. Succumbing to the pressures from USA and India, China will consider to do business with India by investing in the country. India’s Make in India has gained destination of global FDI attraction. This helped India to blip in the global radar of manufacturing powerhouse. Even the Chinese analysts raised concern over the surging growth of Indian manufacturing powerhouses, revealing backlash on Chinese competitiveness. A Chinese daily said that China was losing its competitiveness and may rally behind India, quoting the example of Apple shifting to India.
Besides Huawei, a number of Chinese vendors are in the rally to set up their smart phones manufacturing plants in India. Vivo China has already set up a smart phone manufacturing unit in Greater Noida. Xiaomi, ZTE, One Plus, Gionee are in the queue to open their manufacturing shops in India.
Chinese renewable energy firm Chint Group, chemical firm Sopo Group, Shanghai Electric Company and Ding Sen are among the firms looking for substantial investment in India. China’s biggest industrial park developer CFLD looks to set up 10 industrial parks in India
Mr Modi was never averse to Chinese investment. His relation with China was established well before he became Prime Minister. His priority was to attract Chinese investment in Gujarat. And, this continued even after he became Prime Minister.
Modi’s yearning for Chinese investment coincided with Chinese President Xi Jinping’s new strategy for China’s overseas investment. Jolted by glut in inward investment, China is on the binge for outgoing investment. From a paltry overseas investment of US $ 3 billion in 2005, Chinese overseas investment increased to US $ 165 billion in 2016 and became the third biggest overseas investor in the world. Asia was the biggest receiver of Chinese investment. Chinese investment also made a surging growth in South East Asian countries including Myanmar, Indonesia, Malaysia and Thailand.
Modi’s model for growth is a mixture of protectionism and globalization. His Make in India is a fine tune to the inclusive growth. His main aim for Make in India is to increase employment opportunities with widespread manufacturing activities in the country and alleviate poverty. The advantage to Modi’s Make in India initiative is India’s large domestic demand. (IPA)

Friday, 24 February, 2017