Analyzing the Expanse of the US-China Trade War: The Unequal Benefits for Nations
The US-China trade war, ignited in 2018 during Donald Trump’s presidency, has been a catalyst for transformation in global trade dynamics. While countries worldwide grappled with the implications, economic think tank GTRI’s recent report has shed light on unexpected beneficiaries of this tumultuous period, emphasizing a critical comparison between India and other nations like Mexico, Canada, and several Southeast Asian countries.
The Trade Landscape Post-War
The GTRI report outlines a compelling narrative: Mexico, Canada, and the ten-nation bloc ASEAN emerged as significant benefactors of the trade war. Collectively, they accounted for a staggering 57% of the growth in US imports during this period. By comparison, India, while also seeing a notable increase in exports, has not capitalized on the situation to the same extent.
India’s exports to the US rose by $36.8 billion, buoyed by its electronics, pharmaceuticals, and engineering sectors. However, this figure pales compared to Mexico’s $164.3 billion increase and Canada’s $124 billion surge. Vietnam and South Korea also witnessed significant boosts, highlighting a compelling narrative of regional competitiveness reshaped by trade tensions.
Economic Opportunities and Challenges
The report underscores the need for India to bolster its local supply chains. To thrive in this new trade milieu, India must produce critical intermediates and improve cost efficiency. The long-standing dependence on Chinese components places Indian industries at a disadvantage. For sectors like pharmaceuticals, where up to 70% of active pharmaceutical ingredients (APIs) are sourced from China, the imperative to cultivate homegrown alternatives is paramount.
As the possibility looms of Trump regaining the presidency, Indian businesses face a chance to capitalize on a potential shift in US tariffs targeting countries like Mexico and Canada. This evolution in the trade environment may provide India with an opportunity to position itself more favorably as a manufacturing hub, provided it addresses current systemic inefficiencies.
Spotlight on Export Growth Sectors
Delving deeper into the sectors that have driven India’s recent export growth, the smartphone and telecom equipment industries emerged as the most significant contributors, accounting for a $6.2 billion increase. This represented an impressive 17.2% of the overall rise. Other noteworthy sectors included medicines ($4.5 billion, or 12.4%), petroleum oils ($2.5 billion, or 6.8%), and solar cells ($1.9 billion, or 5.3%).
However, a closer examination reveals a troubling reliance on imported inputs. Many smartphone components and solar cell materials primarily come from China, raising alarms regarding India’s long-term sustainability and resilience in these burgeoning industries.
Strategic Recommendations for India
To emerge stronger from the backdrop of the US-China trade war, strategic shifts are essential. GTRI recommends that the US revise its non-preferential rules of origin to limit the use of Chinese inputs in products sent to its shores. This could be a more effective route than merely imposing higher tariffs, fostering a more competitive landscape that could benefit Indian industries.
Moreover, India stands to gain from modest reductions in import tariffs, which could lower the average tariff to around 10% without significantly impacting revenue. This adjustment would not only enhance the ease of doing business but also attract foreign investments, pivotal for bolstering India’s domestic industries.
Conclusion: The Path Forward for India
As the trade landscape evolves, there is a clear imperative for India to reassess its strategies. The potential resurgence of Trump heralds new opportunities, but without a robust framework that strengthens local supply chains, enhances competitiveness, and addresses the critical reliance on imports, India risks falling behind.
In contrast, countries like Mexico, Canada, and ASEAN have adeptly navigated the intricate trade waters of the US-China trade war, reaping extensive benefits. India’s growth in export revenue, while commendable, serves as a call to action: the time has come to cultivate a more self-sufficient and competitive economic ecosystem. A deliberate and strategic approach could set the stage for India to emerge as a formidable player in global trade in the coming years.