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Trade War Warms India And China Relations – Analysis

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While the global trade is engulfed by protectionism versus free trade, heydays are afoot for India- China relation. The protracted conflict between India and China reached a detente after the trade war broke in the global market. Bilateral moves to bring a new synergy in the relation failed. A new sign of hope emerged when trade war has become the lever to improve the relation. This is because both India and China are the victims of USA waging trade war. It is the trade interests which brings two countries closer , while laying a lid on adverse political relation. Till now, India was keen to improve the relation with China. After trade war, China vies India’s heart.

Trade war is not a short term tussle. It is a long term conflict between protectionism and free trade. It will linger and no body knows when it reaches the end game. Some people termed it an indirect sanction against the export base economies, given USA being the biggest buyer in the world. Amidst this turbulence , a new pattern of economic partnership emerges, even among the politically adverse countries, resulting a new look between India and China relation on economic front.

Like China, India was dragged in the trade war by USA, however, on different footings. India was alleged for giving export subsidies, which were non-WTO compliant, after India crossed the threshold limit of per capita income of $1,000.

There are two fronts of India- China economic relations. One is trade and the other is investment. Interestingly, both act opposite to each other in terms of benefits accrued to India. In trade, benefits accrued more to China, while in investment India gained more. China exported much more than India did. China accounts for more than a third of India’s global trade deficit. Large trade deficit means a collateral damage to current account balance and set back to GDP growth.

China is on the investment binge in India. It has become the driving force for the start-ups in India and a trigger for the growth of electronic manufacturing industry. It is considered the future linchpin for foreign investment in India.

One of the important reasons for China emerging an important investor in India is Modi government reversing the security threat from China. Modi government’s FDI policy attributes more to economic and financial power of China, instead of security threat.

Though India and China were inching for better relation since past two years, albeit slowly, China continued to play hardball against India whenever political disputes arose. The situation aggravated further after India refused to join Chinese BRI ( Belt and Road Initiative). Amidst this antagonistic situation, trade war emerged the linchpin in the upturn of India- China economic relation. It evoked an intent from both sides to have a fresh look for good neighborhood for better economic partnership. The momentum was further accelerated by Prime Minister Modi’s informal summit with Xi Jinping in April 2018, which extolled each other for better relation.

Trust deficit began to dilute and bonhomie between the two leaders began to rise. China started praising India’s economic power for its large domestic market and IT prowess. It advocated India – China joint partnership to counter USA protectionism. Global Times – the Chinese official media on international issues – noted that “ a new day has dawned for the two countries , which were once at odds”.

China praised India’s retaliation by raising tariffs on imports of 29 items from USA. Alleging that USA protectionism would undermine the global free trade system, China argued that in the time when global value chain ( GVC) plays a pivotal role in manufacturing, protectionism would harm the global manufacturing

In fact, despite political difference , economic ties between India and China have been steadily rising. Seemingly, there is a shared belief that both countries can reset their trust deficit by reaping the benefits from their inherent economic advantages. Mr Gao Feng, the spokesman of Ministry of Commerce, China, said “As two large developing countries and major emerging market economies, China and India both have a huge domestic market”. He said further, “ the economies of both countries are highly complementary to each other, creating enormous potential for cooperation

For India, a new opportunity stems from the trade war to export more to China. China plans to import more from India, along with other countries, to counterbalance the imports of high tariff products from USA. It decided to reduce import tariff on 8,500 items from India and other Asian countries. To fill the gap of soybean, Chins contemplated for zero duty import from India , against 3 percent at present.

A huge market opens for India’s export of soybean meal to China after China decided to impose 25 percent tariff on USA soybean. China is the biggest importer of soybean in the world. Annual import of soybean by China is around US$34 billion. USA accounts for the biggest share of China’s soybean import market. With the imposition of high tariff on USA soybean, which makes a space for new entrants, India stands for a bigger chances to cut a big pie of Chinese soybean market, with the tariff slating to zero. At present, India’s global export of soybean is about US$0.7 billion. Of these, China

Similarly, China can play a significant role in infrastructure investment in India. Last year, China’s Sany Heavy Industry planned an investment of US$9.8 billion in India, while Pacific Construction, China Fortune Land Development and Dalian Wanda planned Investments of more than US$5 billion each.

The cross-border e-commerce would be an eye-catching fief for joint cooperation between the two countries. India has become the fastest market in e-commerce, with about 100 million internets adding every year. According to a report by Tracxn, a start-up research company in India, a whopping US$5.2 billion was invested by Chinese internet companies in 2017, like Alibaba , Fosun, Baidu and Tencent. This showed a five-fold jump from US$930 million investment in India in 2016.

 

Views expressed are personal


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Subrata Majumder

Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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