India is among the countries that stand a chance to benefit from the Sino US online trade tensions that are ongoing. The same has been expressed by UN in its latest report.
China and the United States are two of the top economies in the world. The trade war has now entered nearly a year since its inception with US President Donald Trump imposing heavy tariffs over aluminium and steel items. This occurred in March last year, in move that had bought about a risk of trade wars at a global level.
China too, in response had implemented tariffs on American exports, which amounted for billions of dollars in a counteract move.
As the UN experts have expressed, the counteract moves offer little for domestic producers in either of the nations. While the conflict is bought to an end, implications on economy could be huge on a global scale.
Chinese exports worth USD 250 billion have been imposed with US tariffs. Of the same, just 6% will be taken by US firms, as expressed by UNCTAD (UN Conference on Trade and Development).
The research further expresses that US exports worth 85 billion are subject to tariffs by China. Only 5% of the same stands to be picked by US firms.
In an attempt to come to terms of the US demands, which seek to bring down the bilateral trade deficits that stand at USD 375 billion, China has now decided to take measures that will step up American imports and investments.
While the tariff dispute is resolved, duty on either of the countries’ exports shoots up to 25%. They currently stand at 10%, UN expressed.
A number of countries stand to benefit from the trade war. EU members will see exports in the bloc rise by USD 70 million. Japan and Canada will both see a growth of USD 20 billion in the same hemisphere.
Similarly, Australia, Brazil, India, Philippines and Vietnam will all benefit substantially from the trade tensions.
UN has described the protective tariffs as ‘A gun that recoils on ourselves’. The situations where the phase was earlier used played a part in bringing about the Great Depression of 1930s, with the rise of extremism. The implications would bear a significant impact and would involve an economic downturn, UN said, as caused owing to instabilities in commodities and financial markets alike.
There is even a risk of currency wars coming into play, with the dollar denominated debt becoming more difficult to service.
The initial reasons that motivated the imposition of tariffs was to make US-made products less expensive than imported ones, so as to inspire consumers to invest in the same.
Let us take a quick overview of some important facts surrounding the conflict.
Relations among the two involved nations, China and the United States are the worst they have been since 1979, and either of the economies has been weighed down by the conflict. The implications are higher on China as compared to US.
Impact of the trade wars on Indian economy and currency
Going by the latest economic figures, we figure out that economic growth in the last quarter of 2018 in China was the lowest since 2008. The growth sustained itself for certain time duration and the decline in figures is a result of the length of standoff between the two countries.
China has lent an ear to the participants at the G20 summit that took place in November at Buenos Aires. They have declared tariff cuts to goods exceeding 700 in number. China has now removed the duty on US cars, and is also buying US crude oil and soyabeans.
Reactions to the negotiations in BSE, SENSEX, Rupee and Asian Markets
Overall, Sino US negotiations have come across as a cause of nervousness for the Indian investor. With no conclusive end to the trade war visible on the horizons, share prices share prices in BSE stayed lower than expected as signs of weakness prevailed in global equities.
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The rupee has been trading higher with the dollar. It stays around Rs. 71 mark, after peaking at the strongest mark of Rs. 63 when the previous year began. This is a direct result of the ongoing trade wars, as China still stays the biggest trade partner for India.
China has already put in some remedial measures that accentuate internal growth. The Japanese markets too have experienced a downfall, as resulting from the reduction in trade of electrical components with China. Indian stocks have been facing a difficulty as well.
In January, SENSEX and NIFTY had both risen strongly and gained 0.5%. This was while hopes of breakthrough through talks prevailed. Other Asian markets had reacted positively as well.
Ways in which India stands to benefit from the trade conflict
At a juncture wherein two of the largest economies in the world confront each other, there will be other parties that lose out. At this point, India is a default choice for relocation for companies that are attempting to overcome US tariffs in China. Nearly half of the merchandise produced in China is exported, and the investors will be looking beyond US.
A number of questions prevail on the underlying reasons for the conflict. The way the two societies should be organised has been a cause of tension. Tension also prevails over cyber and technological transfer, which has come to fore with the Huawei scandal.
India stays deeply affected by the dispute. It is experiencing economic effects of reduction in trade with China. India has also come across a drop in currency value, which is subject to a significant investment in China’s large manufacturing expenditure.