US and China gear up for round 2 of trade war: Could this benefit India?

After the US raised tariffs on Chinese goods worth $200 billion, China said that it will raise tariffs on $60 billion American goods in retaliation. In response, both Asian markets and Wall Street fell sharply as the two countries found themselves embroiled in yet another round of trade war.

Also read: G20: US-China agree to call off trade war for a limited period, Qrius compares statements

On May 5, US President Donald Trump announced a 25% hike in duties on $200 billion Chinese products, stating there was incremental progress on trade discussions between the two countries, despite this administration claiming that the talks were going well, reports CNBC.

Trump took to Twitter to announce that he will be raising the tariffs by over half its original rate.

He said that China has already been paying the US tariffs of 25% on $50 billion dollars worth of high-technology goods, but only 10% on $200 billion worth of other products like meat, vegetables, tea and coffee, and apparel.

“The 10% will go up to 25% on Friday. 325 Billion Dollars of additional goods sent to us by China remain untaxed, but will be shortly at a rate of 25%”, he tweeted.

How did the US-China trade war escalate?

Over the years, the US began to take issue with China’s trade surplus with the US, claiming it was because of China’s unfair trade practices.

Also read: Brace yourselves, the biggest trade war in economic history kicked off this Friday

In 2018, the US imposed tariffs on $250 billion worth of Chinese goods of a total $539 billion imports, reports the BBC. China then retaliated with tariffs on $110 billion of American goods out of a total $120 imports from the US.

In December 2018, US and China called a truce to their trade war and attempted to renegotiate a deal. CNBC explains that the two main points of contention in the trade talks are intellectual property rights and forced technology transfers.

A few months ago, the United State Trade Representative (USTR) placed India, China, and Pakistan on a Priority Watch List for intellectual property rights violations.

The Special 301 report says that trading partners like India and China who do not “adequately or effectively protect and enforce intellectual property rights or otherwise deny market access to U.S. innovators” have been put on the watchlist.

In terms of forced technology, if a foreign company wants to enter the Chinese market, it must surrender its technology to the Chinese government in the form of a joint venture, explains the South China Morning Post.

The USTR has said that this forced technology transfer is “unreasonable or discriminatory” and creates a burden on US commerce.

However, it seems that Trump grew frustrated at the lack of progress and imposed tariffs on the Chinese to pressure them—a move that China has also now made.

CNN reports that China has also launched a media campaign against the US through its state-controlled media to not only dredge negativity against US’ trade tactics but also confidence in its own economy.

However, Trump has tweeted that the duties the Chinese have imposed will have no negative impact on American farmers and producers.

Also read: How Trump’s trade war affects working-class Americans

He added that his “respect and friendship with President Xi is unlimited” but the US wants to “make up some of the tremendous ground” it has lost to China on trade. He also said that a deal is on the horizon.

Impact of the US-China trade war on India

Experts say that the Indian stock market could experience short-term ripples of the US-China trade war. In the long term, India might become a major exporter to both countries, particularly as a manufacturer, replacing China.

A report by the UN Conference on Trade Development found that Indian exports could rise by 3.5% if these tensions persist.

However, the opposite could also happen where these taxed goods from the US and China get dumped into importing countries like India and Canada. Bloomberg Quint says such a situation could lead to a recession, loss of jobs and income, and a push towards protectionism.

Experts say that it is unlikely for India to experience any strong kickbacks from the escalating US-China trade war. However, the country can look forward to an increase in exports, particularly in textiles and IT services.

Rhea Arora is a Staff Writer at Qrius

US-China Trade War