Impact of US-China Trade War

Why in news?

The latest round of the tariff war between the US and its largest trade partner China, is set to present a significant opportunity for India.

Trade deficit- US’s trade deficit with China and accusation of unfair subsidies have constrained the relationship leading to trade war
2018 trade war - n 2018, US imposed a 25% tariff on Chinese imports of around 34 billion dollars and further tariffs in 2018 and 2019.
US accused China for “unfair trade practices” and “technology theft”.
Limitation on technology transfer- The US has denied China both the knowledge and inputs for producing frontier goods and services as well as access to markets, affecting semiconductor production and 5G technology.
2023 trade war- It encompasses 100% tariff on electric vehicles, a 50% tariff on semiconductors, and a 25% tariff on electric vehicle batteries imported from China.
Increased tariff on medical gloves, syringes, needles, critical minerals, solar cells and aluminium.
These measures aim to counteract China's perceived unfair trade practices and protect US industries from the influx of low-priced Chinese goods.

Positive effects

Negative effects

Opportunities for exporters- Indian exporters can capitalize on the void created by the US-China tariff conflict.
Strong market- India has a strong market presence in the US for products like face masks, syringes, medical gloves and natural graphite.
Metals and minerals- Higher tariffs on Chinese metals can benefit Indian exporters of these commodities, increasing their market share in the US.
Increase competitiveness- With the US imposing higher tariff on Chinese goods, Indian products in similar categories might become more competitive allowing Indian exporters to increase market share in the US.
China’s retaliation-If China imposes retaliatory tariffs on US goods, Indian exporters could step in to supply products to both the US and Chinese markets.

Rise of dumping- Chinese products that face higher tariffs in the US could flood the Indian market, harming local manufacturers.
2018 tariff hike- The tariff hikes in 2018 did not reduce China’s exports as they merely shifted to other destinations or entered the US through third countries.
Electric Vehicle sector- The significant tariff hike on Chinese EVs, from 25% to 100% poses a risk as these vehicles might be redirected to other markets, including India which could disrupt the local market manufacturers.
Semiconductors and Li-ion batteries- essential components of various industries would potentially inundate Indian market with cheaper alternatives.

Anti-dumping measure- India employs tools such as the Directorate General of Trade Remedies to impose anti-dumping duties on underpriced imports. However, the process can be slow due to delays in accessing and analysing trade data.
Enhanced monitoring- To address these challenges more effectively, India could establish a dedicated department to monitor key import data daily. This would allow for quicker responses to potential dumping and unfair trade practices.
Review of EV policy- Given the potential influx of cheap Chinese EVs, India might need to reassess its EV policies to protect domestic manufacturers and maintain a balanced market.
Strengthening trade policy- India should develop a robust trade policy with China that supports its manufacturing sector and mitigates the adverse effects of the trade war.
China plus one strategy- India should emphasize its potential as an attractive alternative manufacturing hub for companies looking to diversify away from China.

China plus one refers to a strategy in which companies avoid investing only in China and diversify their businesses to alternative destinations.