Trade war between United States and China

Trade war between United States and China


Trump administration announced additional tariff from 10% to 25% on $200 billion worth of Chinese goods under an ongoing Section 301 targeting Chinese goods on grounds of an alleged theft and forced the transfer of technologies from US companies. The tariffs will not come into place immediately but will go through a two-month review process.

Some of the products are from Made in China 2025 sector which is the strategic plan to make China a leader in key global industries, including technology.

The reason behind the additional tariffs is unfair trade practices adopted by China as said by US. As US imposed addition tariffs on $34 billion worth of goods, China Shortly implemented retaliatory tariffs on the US with the amount of $34 billion in US Exports2. As a result of China’s retaliation, US began the process to impose a tariff of 10% on an additional $200 billion of Chinese imports.

On August 1, 2018, US trade Representative got permission from the President to consider increasing the tariffs on the remaining amount of $200 billion of Chinese goods under an ongoing section. On the next day, China said that it would hit back with “countermeasures” if the US would impose tariffs of 25% on its goods.

The US is upset because China has chosen to adopt a retaliatory strategy for tit for tat in response.

“Regrettably, instead of changing its harmful behaviour, China has illegally retaliated against US workers, farmers, ranchers and business,” Trade Representative Said.

US is also creating a tension for China by forming a coalition of the US, The European Union, Japan, and several other countries of the global north at World Trade Organisation to address unfair trade practices such as forced technology transfer and intellectual property theft.

On another side, China not only raising the bar on countermeasures but also knocked the doors of the WTO dispute settlement body with trade disputes against US’s illegal and unilateral trade measures.

The 10% tariff on an additional $200 billion includes products like vinyl flooring, laminates and furniture. Imposing such duty would benefit Indian Exporters like Greenlam Industries and Responsive Industries.

“Greenlam exports around $5-6 million worth of laminates to the United States. At this point in time, it is difficult to assess the increase in exports, if any, is the US a large player branded laminates. But, there is a possibility of the shift in consumption from bulk to the branded products which may benefit Indian players like us,” said Ashok Sharma, Chief Financial Officer, Greenlam.

China being the largest consumer of base metals, the current development should have a negative impact on the prices of base metals. So there is a possibility of reducing the base metal price, this may help the Indian importer of base metals. The next question that arises is, what happens to US crude oil if China does not buy it.

According to Wood Mackenzie, while China could secure crude oil from alternative sources such as West Africa which has similar quality as US crude, the US would find it hard to find an alternative market as big as China. However, if crude oil prices fall as a result, then other things staying the same, it will benefit India4. As India is one of the largest consumers of crude oil, thus reducing the price would help it a lot.

This trade war could offer an opportunity for India. “India can become more competitive in segments such as textile, garments and gems and jewellery since India already has an edge,” says economist Upasna Bhardwaj of Kotak Mahindra Bank. However, this is doubtful in the short run because China’s exports to the US are much more diverse and it’s a tall order for India to fill the gap.

We believe that this disruption is a challenge also. With huge unutilized capacity in China, it will do every attempt to dump these goods in South East Asian countries. India needs to stay ready with such measures else we can see our manufacturing die.

Further, also there is no guarantee that the demand of the US will shift to India. Rather the next possible move of the US government would be to impose restrictions on import from India. Any such move may not be done early as India’s contribution to US’s overall trade deficit is negligible.

Research Assistant
Raj Kumar
Green Portfolio




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