Us – China trade war: impact on India

The two economy giants of the world, the US and China locked horns sparking the major trade war between the two nations.  Any settlement appears a distant dream; as a matter of fact, it has been intensifying with every passing day and recently on August 1, 2019, US announced fresh tariffs of 10% on $300 billion on imports from China, to be implemented from September 1, 2019.

Why US-China trade war started

It was during US presidential election campaign in 2016, Trump had drawn attention of US populace to the issue of lob sided US trade policy with China and pledged to redress ‘unfair trade deals’ of the past. Trump’s widespread strategy to “put America first,” protecting US jobs and stop “unfair transfers of American technology and intellectual property to China.” US also blamed China of taking advantage of the WTO enabled global trade framework to its advantage through currency manipulation, violations of US sanctions on third countries and veiled subsidies. Accordingly, on July 6, 2018, US levied 25% tariff on $34 billion on Chinese goods and China instantly responded with tariffs on a similar amount of US goods. Subsequently, on August 23, 2018 both sides increased tariff on additional goods worth $16 billion. However, the main threat came with US declaration of the $200 billion tariff imposition on China’s export in the latter part of June same year while China was more cautious in imposing the tariff at same rate but  only on $60 billion.  The US goods trade deficit with China was $419.2 billion in 2018 as against $375 billion in 2017 and the gap has continued to widen.

After effects

The full-fledged trade war between the two largest economies of the world will have major consequences and outcome may not be easy to control in an integrated global economy thereby destroying the trade agreements under WTO and rendering the organisation redundant. The trade war could weaken investment, depress spending, disturb financial markets and slow the global economy. It could also snowball in other countries raising protectionist barriers. To offset the US impact ,the Chinese  have  been  clever  in  targeting  products  such  as  soybean  that  hit  Americans  most as it  buys about 60 percent of their soybean exports from the US. Further, a study on tariff on steel exports shows that 16 US jobs will be lost for every steel or aluminium producing job gained, totaling over 400,000 net lost jobs. The Chinese could also influence consumers to boycott US goods on similar lines as that of an incidence in 2012, where Chinese boycotted Japanese cars and stores because of a territorial dispute, badly affecting the sales of Japanese goods.  Increase in interest rates in the US will adversely impact emerging economies such as India, both for the equity and debt markets.

View Point

The Bank’s Economics Prospects Report had forecasted that the Indian economy likely to grow at the rate of 7.5% during next two fiscal years and is fastest growing major economy. However, increasing tension between the US and China, and the implementation of tariffs will impact Indian economy more adversely in the long run. The biggest impact could be on the rupee which hovering around 68 against the US dollar and may touch anything between 72-80 per $. The higher oil prices will further widen the India’s current account deficit adversely affecting economic stability. However, India has opportunity as well, may be in the short to midterm where it could reduce the trade deficit with China which stand at $57.4 billion in 2018. China imports approximately 36,148,312 tons soybean form US in 2017, which has almost dropped to zero, presenting huge opportunity to India. India may also exploits the other areas in exporting garments, textiles, gems and jewellery.

More than the US – China trade imbalance of $419.2 billion, the US is more concerned with the Made in China (MIC) 2025 programme of China, which could challenge the US supremacy in the high technology domain. The US would wish China to forgo its  MIC 2025 whereas  China considers  it  a   normal  strategy which  has  been  followed  by  countries  like  Japan  and  South  Korea  and  even  by  the  US  during the  early  years  of  its development. 

16 Aug 19/Friday                                                                                Written by Fayaz

THE U.S. OR CHINA? EUROPE NEEDS TO PICK A SIDE

Amid ten consecutive weeks of protest in Hong Kong, Beijing is looking to a seemingly unlikely place for support: Europe. In recent days, Chinese ambassadors across the continent have gone on the offensive to rally Europe behind Hong Kong’s government and against the protestors. As part of their campaign to promote Beijing’s line, China’s ambassadors are publishing op-eds in local papers and publicly criticizing European leaders for failing to denounce what they are trying to frame as violent protests. The audacity of China’s efforts suggests that in Beijing’s eyes, Europe is up for grabs.

There’s a reason China thinks Europe might be persuaded. As China attempts to spread its authoritarian values across the globe, and especially as the competition between China and the United States intensifies, Europe has conspicuously avoided siding with the United States over China. European leaders remain convinced they can uphold the values and norms they share with Washington while benefitting economically from greater engagement with China. This stance is short-sighted and dangerous—putting liberal democracy in peril.

China is a close and important partner for Europe; the two sides trade roughly 1 billion Euros worth per day, and Chinese foreign direct investment in the EU totaled 29.1 and 17.3 billion Euros in 2017 and 2018 respectively. The economic opportunity that China presents—especially for countries that have lagged economically behind Western Europe—creates strong incentives to sit on the fence. Countries in Southern and Eastern Europe in particular benefit from China’s Belt and Road investment and are keen to avoid losing it.

At the EU-level, leaders have been unable to chart a clear course for dealing with China. Yes, some countries like Germany and France have driven progress on this front—the EU referred to Beijing as a “systemic rival” earlier this year, and the European Commission introduced a new framework to facilitate closer scrutiny of Chinese investments in Europe. But while EU-level joint statements and guidelines are welcome developments, implementation of the guidelines is left up to EU member states, who have different strategies to deal with China. As we have already seen, for example, some European leaders are willing to criticize China’s business practices and human rights record, while others have remained silent. This lack of cohesion prevents Europe from effectively countering the challenges that China’s rise creates or from clearly aligning with the Unites States in the ways that will be required to defend shared values.

Europe’s lack of a unified, strong approach largely stems from an absence of a European-wide consensus about the threat that China poses. Unlike Russia, which illegally annexed territory in Ukraine and regularly interferes in Europe’s democracies, China has pursued a more subtle approach to Europe. Moreover, while Russia looms large to Europe’s north, China is more distant and does not pose the same direct military threat. China’s tactics have so far obscured (or made it easier to overlook) the fact that, like Moscow, Beijing views liberal democracy as a threat to its success and stability and believes that by weakening democracy it can accelerate the decline of Western influence.

The United States has done little to help move Europe off the fence. Instead, the Trump administration has actively pushed the continent away. Withdrawing from the Paris Climate Accord and the Iran nuclear deal, imposing steel and aluminum tariffs, and antagonizing some of its closest allies, including by referring to the European Union a foe, have made the United States seem like a less attractive partner than it used to be. While Washington has been antagonistic, Beijing has been careful to strike all the right chords. The CCP talks about harmonizing civilizations, invokes “values” when discussing European and Chinese commonalities, and extols the values of multilateralism. Because China and Europe increasingly find themselves on the same side of conflicts with Washington, this administration has made it easy for Beijing to present itself as the reliable and responsible global player.

Europe’s reluctance to side with the United States puts liberal democracy in danger. The closer Europe gets to China, the less opposition China will face in its efforts to re-shape norms—on issues like data and privacy, Internet freedom, AI and governance. To uphold their shared values, both the United States and Europe need to collectively push back against China’s unfair trade and investment practices, its blatant human rights abuses, and the anti-democratic norms and practices it seeks to spread. A Europe that refuses to pick sides is exactly what Beijing seeks to achieve. Beijing understood long ago that its rising economic influence would lead other countries to balance against it. In an effort to dilute Western opposition to its national interests, China has taken steps to interrupt Europe’s alignment with the United States.

Choosing the United States does not mean that Europe should forfeit all trade and economic relations with China. But as Europe advances its economic relationships with China, it must be clear-eyed about the risks that accompany those ties. Beijing expects that its economic influence will translate into lasting diplomatic leverage in Europe. It will use its investment to secure support for—or at least prevent the EU from taking a unified position against—human rights issues like Tibet, the mass detention of Uighurs in “re-education” camps in Xinjiang, and on geopolitical issues like Taiwan and the militarization of the South China Sea.

China is already using its economic relationships to pressure Europe to acquiesce to its efforts to neuter democracy and human rights protections. For example, in 2017, Greece blocked an EU statement at the UN criticizing China’s human rights record. This was almost certainly because of China’s growing economic investment in the country. As long as Europe continues to sit on the fence, actions like these will only continue.

What would it look like for Europe to get off the fence? 5G is at the forefront of the debate. Europe should follow Japan, Australia and New Zealand’s example and ban high-risk vendors like Huawei from building its 5G infrastructure. Allowing China—which has a history of intellectual property theft, cyber espionage and the absence of an independent judiciary that allows the CCP to leverage Chinese companies for political gain—to play a foundational role in Europe’s 5G future would aid in Chinese espionage, jeopardize U.S.-European intelligence sharing and present novel threats of disruption or exploitation. Yet despite the risks, Huawei continues to expand its foothold in Europe’s 5G landscape. Countries including the United Kingdom and the Netherlands are allowing use of Huawei equipment on non-core parts of their networks.

Europe could also work with the United States to develop a joint response to China’s Belt and Road Initiative (BRI), which serves as a conduit for China’s influence and tactics. Here Europe and the United States could develop common transparency, environmental and social standards, and pool their financial resources to jointly invest in those countries where their interests are most at stake. Similarly, Europe could work with Washington to better insulate supply chains against Chinese influence. Finally, Europe and the United States could develop a set of common rules for data privacy and artificial intelligence and vocally criticize China for its blatant human rights abuses. Progress on any of these fronts would be welcome. But at the heart of the matter, Europe must clearly communicate to Beijing that it will unequivocally side with America to uphold democratic norms and standards.

For certain, there has been a shift in European views on China. Europeans are more aware and concerned by the challenges that China poses and have taken real steps to push back against it. But the message coming from Europe continues to convey an aversion to choosing between the United States and China. Europe must realize where its long-term interests lie, and not let this administration or the allure of economic gains prevent the right choice. The health of liberal democracy will depend on it.

13 Aug 19/Tuesday                Source: politico.com

CHINA INDIA STAND OFF - US HINTS AT OBOR (CPEC) AS THE ROOT CAUSE FOR INCREASED TENSIONS BETWEEN THE TWO GIANTS

Speaking against China-Pakistan Economic Corridor (CPEC), United States Defence Secretary James Mattis termed the project as controversial.

US Defence Secretary James Mattis told the Senate Armed Services Committee that a part of One Belt One Road project passes through ‘disputed territory’. He clarified that US openly opposes this project. This changed US Stand has sent shivers in Pakistan. The statement has been widely covered by Pak Media, which interprets this development as another US pressure tactics on Pakistan to tow its line.

China out rightly rejected the statement by claiming UN support for its controversial One Belt One Road (OBOR) initiative.

"We have repeatedly reiterated that the China-Pakistan Economic Corridor (CPEC) is an economic cooperation initiative that is not directed against third parties and has nothing to do with territorial sovereignty disputes and does not affect China's principled stance on the Kashmir issue".

However the ground realities are totally different.

India’s refusal to attend the 'Belt and Road Forum', organised by China in May, was the first open show of dissent by India on OBOR.  As the sequence of events unfolded, it was clear that the Indian move has not gone down well with China. The differences climaxed with Doklam, which has made the world look deeper into the geo-strategic space in Asia. The rising tensions between the two Asian powers does not speak well for the world’s falling economic growth. Major economies of the world wants both China and India to sustain their growth. The world has now realised that a stable Asia is vital to its interests and the recent statement by the Defence Secretary is an indication towards that.

The future course of action towards which, this statement hints at is that; China must address Indian concerns on POK portion of the CPEC, if it is really interested in the economic development of the region. What is veiled in this message is that Chines hegemony in garb of economic development of the region will not be accepted by the US. It is up to China to understand and address the issue.

US BACKS INDIA ON 'ONE BELT ONE ROAD', SAYS IT CROSSES 'DISPUTED TERRITORY'

The Trump administration has informed Congress that it too believes the China-Pakistan Econo­mic Corridor (CPEC) passes through a disputed territory of Jammu and Kashmir. “The One Belt, One Road also goes through disputed territory, and I think that in itself shows the vulnerability of trying to establish that sort of a dictate,” US Defense Sec­retary James Mattis told the Senate Armed Services Committee. Secretary Mattis said the US oppo­sed the One Belt, One Road policy in principle because in a globalised world, there were many belts and many roads, and no one nation should put itself into a position of dictating One Belt, One Road.

Viewpoint

US support for India’s opposition to the Chinese project was first reflected in the joint statement issued by the two countries after PM Narendra Modi met with President Donald Trump earlier in June. India is the only South-Asian country not to be involved in China's ambitious project to connect Asia, Africa and Europe through a maze of roads and waterways. The main reason behind India’s opposition towards the policy is the China-Pakistan Economic Corridor (CPEC), which is a part of OBOR and has projects in Pakistan-occupied Kashmir. The new US position on CPEC will further strain already tense relations between the US and Pakistan. The One Belt One Road strategy seeks to secure China's control over both the continental and the maritime interest, in their eventual hope of dominating Eurasia and exploiting natural resources there things that are certainly at odds with US policy.