DMPQ- What is a Trade war? What are the implications on India of the US China Trade war?

Trade war is a situation where countries restrict each other’s trade by imposing tariff or quota on imports.  US has started imposing tariffs on as much as 25 percent on $34 billion in Chinese imports.  China responded with retaliatory tariffs of 25% on US goods worth an equivalent $34 billion, including soybean, automobiles, and marine products such as lobsters.  Donald Trump told that he may also consider imposing additional tariffs of $500 billion on Chinese goods.

The trade war may impact Indian economy more adversely.  A trade war would slowdown global growth overall, worsening India’s already dismal export numbers.  The biggest impact could be on the rupee which is already battling historic lows against the US dollar.  The rising price of oil threatens to widen India’s current account deficit, impacting India’s macroeconomic stability.  Reducing investment flows into India.  However, India which runs a $51.08 billion trade deficit with China may stand to benefit. China imports 100 million metric tons of soybean which serves as protein source and feeds its food processing industry, this presents a huge opportunity for India.  India may also seek the opportunity to reduce its own trade deficit against China. India may be able to gain some traction in textile, garments and gems and jewellery if Chinese exports to the US slow down.

 

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