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US-China Trade War
Context:
With the US presidential election due at the end of the year, there is a growing debate on future US—China economic relations, including a possible new trade war to contain the rising threat of China shock 2.0.
About US-China Economic Relations:
- U.S.-China trade exploded in the two decades after China joined the World Trade Organization in 2001.
- Total trade is around 575 billion U.S. dollars, with a US trade deficit of around 280 billion USD.
Reasons in favour of Trade War:
- Millions of Americans have lost their jobs due to import competition.
- Investment by Chinese companies is raising national security concerns.
- The United States has long accused China of pressuring American companies to hand over their technology, or of pilfering it outright.
- Subsidisation and state-owned enterprises :To achieve its economic goals, the Chinese government has poured subsidies into a range of industries, including renewable energy.
- Currency manipulation by China – China manages exchange rate by devaluing its currency to boost its export.
Reasons against trade war /economic decoupling
- U.S. consumers have benefited from the flood of cheaper goods from China including a rise in per capita income.
- China is now the third-largest export market for the United States.
- A 2023 report by the U.S.-China Business Council found that exports to China supported more than one million jobs in the United States.
- Trade restrictions could be minimised by rerouting Chinese imports through third-country suppliers, such as India or Mexico, albeit at a higher price.
- It would take years for “friendlier” countries like India, Vietnam to develop their own manufacturing bases that can compete with China’s, especially in the EV sector.
- A more targeted approach would ideally distinguish between trade involving sensitive military technologies and other goods is also difficult after convergence of military and civilian technologies like in low cost drones.
Impact of Trade War on India:
Benefits:
- India could increase its trade, particularly with the US, which has imposed heavy tariffs on Chinese goods and services, along with increasing FDI.
- According to Economic survey 2019-20 provides opportunity for export diversification India must focus on a group of industries, referred to as “network products”, where production processes are globally fragmented and controlled by leading Multinational Enterprises (MNEs) within their “producer-driven” global production networks.
- India can seize opportunities to enhance its exports to the US:In the enhancement of information and communication technology, eCommerce, the chemical industry, outsourcing, and the automotive sector.
Negatives:
- India should be Cautious against China’s dumping policy ie Influx of low-priced Chinese goods into India, which could harm domestic manufacturing.
- Products subject to higher US duties, such as lithium-ion batteries and semiconductors from China, could also be diverted to India.
- The risk of cheap electric vehicles (EVs) flooding the Indian market due to potential EU tariffs on Chinese EV imports could negatively impact Indian businesses.
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China Shock 1.0 (Post 2000):
China shock 2.0(Present times):
Steps by the US to Counter China Shock 2.0:
China’s response:
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