India must stay clear of the US-China trade war, focus on reviving the domestic economy
US President Donald Trump’s announcement last week to impose tariffs on Chinese imports worth up to $60 billion after an earlier move to raise import duty on steel and aluminium products coming into the US has had a predictable impact. China has retaliated imposing tariffs on US imports worth $3 billion, including aluminium, steel pipes, US pork besides fruit and wine fuelling fears of a trade war in the offing and spooking the stock markets. Trump has justified his action claiming that China has indulged in intellectual property violations while Beijing has threatened to pursue legal action against Washington, which has a $375-billion trade deficit with China at the WTO. Others too have attacked the US for raising import duty on aluminium and steel and have threatened to hit back. What’s worrying is that the threat of tariff wars comes at a time when the global economy is on the mend and from an Indian perspective, when there are signs of a potential rebound in the year ahead and with exports in February topping $25 billion.
There is a recognition that a trade war could derail the recovery. Director General of WTO, Roberto Azevedo, said in Delhi last week that “…disrupting trade flows will jeopardise the global economy at a time when economic recovery, though fragile has been increasingly evident around the world”. Acevedo has called for restraint and urgent dialogue to resolve this looming threat of a trade war while Prime Minister Narendra Modi wants challenges to the trade system to be countered. Industry body FICCI wants India to take the lead in defusing the potential threat of a global trade war. That’s easier said than done. India will have to be mindful of the fact that the US is still its largest export market while China is a big source of imports for our industry. Besides, India runs a trade surplus of over $20 billion with the US, which though not too significant still has a potential to invite a retaliation by the Trump administration. India will have to tread carefully considering not just its economic stakes with two of the most powerful countries and economies but also from the standpoint of the contribution of exports to growth and stability of the currency.
More importantly, the latest round of this tariff war further underlines the need for the Modi government to focus more on reviving the economy and ensuring the completion of projects. A resurgent economy is the best insurance to counter the threat to the global economic recovery.