America-China Trade War: Historic Opportunity For India
US abrasiveness towards China is steered not just by security concerns. It is also because of overwhelming pressure from their corporates – skeptical about China’s earlier anticipated opening-up and now – advocating a stern approach. Therein lies our opportunity.
US President Donald Trump finally increased tariffs on US$200 billion of Chinese goods to 25 percent from 10 percent and is threatening to do more. China’s blocking of Google and Facebook and America’s extraordinary paranoia over Huawei – reflects a new low in the relationship between the two giants. The confrontation between China and America is now full-blown and across sectors ranging from foreign trade (more than 700 b $ a year, and accounting for 13% of America’s world trade) to digital technologies and media. It is also clear that the trade war is only symptomatic of a deeper strategic competition between the two countries. In fact, with the strategic importance of new digital technologies there is only a very thin line that separates commerce and national security. This time the seriousness for the US is even greater because it is pitted against a non-Caucasian rival – one which is not just strong in technology but is also a strong commercial competitor.
This is a god sent opportunity for India to make up on manufacturing when it was being concluded that it had lost the race. This is the time to attract investment into India from Taiwan and Hong Kong because their firms are retreating from their US-oriented manufacturing bases in China whose exports are suddenly rendered uncompetitive. If we don’t act fast enough, these neighbors of China will devise strategies to get their companies to invest back home – China’s gain had also been their own loss. Apart from electronics we should focus on sectors like leather, footwear, furniture, textiles and electronic toys where China had attracted huge investments and is a major exporter, but India, despite our ability to improvise, is a huge net importer.
The Chairman of Acer announced in public recently that Acer is considering working with manufacturers outside China to make its products. Taiwan is luring back Taiwanese companies from China. About 50 firms (Delta electronics, cycle manufacturers Merida and Giant, i-phone assemblers, lap top manufacturers and many more) have returned home with investments of US$8 billion. When the tariff war kicked in last year, the Taiwan government capitalized on this opportunity by starting the Invest Taiwan campaign to incentivize Taiwanese companies to return from China.
As China reels under the double shock of reduced FDI and slowing exports – which will affect its overall economic growth – this is the time to work comprehensively upon China. We should closely analyze tariff lines and seek reduction of our trade deficit with it by extracting lower tariffs on those Indian exports in which we can substitute products supplied by the US – like soya. We should also aggressively invite Chinese companies to invest in India and set up manufacturing bases and encourage more Indo-Chinese joint ventures.
The Belt and Road Initiative has received mixed responses from the western world and international financial bodies. The stakes are high for China and it is suddenly feeling pressured. With political astuteness we should effectively capitalize on China’s anxiety and America’s angst to secure the best deal for India in the emerging new global order.
