Notwithstanding fierce challenges made by world’s top two economic leaders, the Trump – Xi Jinping summit has set the dust of uncertainty and agreed to handle the wide differences between the two economic superpowers through dialogue time to time. This qualified for a good beginning. While Trump was seen exasperated with wide trade deficit, Xi Jinping acted as settler, agreeing to 100-day plan for trade negotiations to increase US export to China. Little parleys were made on Trump’s protectionism and Xi Jinping’s new leadership for globalization, challenging protectionism.
For India, the summit was much ado than imparting impact. At dinner in Mar-a-Lago, Trump joked, he had “ gotten nothing” from the talks with Xi. The only important outcome of the talks was a proposal from China on how to restructure high level dialogue. Till the formula for high dialogue is made, it is naïve to assess the impact on India. However, it is unlikely that a dramatic outcome will stem from the future dialogue between the two countries.
Given the two global leader’s opposite approach to the global economic development , it is important to analyze the impact on India in terms of trade and investment relations between India and the two countries and the repercussion of the relations between USA and China.
While Trump’s penchant towards protectionism will impart a different types of impact on India, given the nature of economic relation between the two countries, the impact of Chinese globalization approach will have different riders on Indian economy. While India’s economic relation with USA is polarized on trade, investment and export of Indian IT talents, economic relation with China is more linked to trade only.
It is unlikely that bilaterally the new trade deal between USA and China will have major impact on the economic relations. China is unlikely to open its door for USA goods benevolently and Trump’s threat to impose higher duty on Chinese goods (45 percent poll commitment) will remain a distant bully in the wake of WTO violation. Presumably, the new trade talks will find some palatable recourse to dilute the tension over wide trade deficit between the two countries.
China has been loosing the power of low cost global workshop in the wake of Yuan appreciation. This means an automatic curb on import of Chinese goods. This will help in counter-balancing the trade deficit. In addition, China has been losing the potential for foreign investment because of high cost manufacturing. This will mount up curb on imports of Chinese goods , manufactured by American investors in China.
Given the absence of any hyper US – China new trade talks, which means a marked deviation from Obama administration, impact on India will be minimal. India’s model of growth is a mix of protectionism and globalization. It is neither export base economy, nor susceptible to globalization. Its growth is polarized on domestic demand and domestic resources.
Owing to these, India’s growth is insulated from US protectionism and China’s reining global economic power.
Protectionism presumably means inclusive growth. Modi’s Make in India is a fine tune of inclusive growth. His main aim for Make in India initiative is to increase employment opportunities with widespread manufacturing activities in the country and alleviate poverty. Therefore, any major attempt by Trump to infuse protectionism may have slender impact on India.
To propel up America First, Trump pledged slashing of corporate tax to 15-20 percent from 35 percent and lure the American investors to come back to USA. To fuel up America’s manufacturing muscles, President Trump went one step ahead of Modi to propel up inclusive growth . He scrapped TPP and discouraged free trade deals. He followed carrot and stick policies to bring back American investment in USA. He warned for border tax on cheap American products made in Mexico.
Therefore, while Trump is on the move to make America great by pursuing inclusive growth through protectionism, Modi orchestrated Make in India initiative, reposing confidence on big domestic demand. In these perspectives, there are little chances for India to be impacted by Trump protectionism.
China plans OBOR ( One Belt One Road) to regain its export base economic power through globalization. With the world export slumped, China’s manufacturing sectors have been facing over-capacity since 2006. OBOR is the new initiative of Chinese leaders to find new markets in Central Europe, South Asia and its neighboring countries. It includes two components – Silk Road Economic Component and 21 Century Maritime Link, covering 55 percent of global GDP, 70 percent of global population and 75 percent of energy . The investments will include 300 projects, extending from Singapore to Turkmenistan.
With Trump abandoning USA’s participation in TPP, which means downfall of world’s biggest trade block in terms of value, China holds the advantages to be the leader for globalization.
India is wary on China’s OBOR. Its concern is China-Pakistan-Economic Corridor, which is a part of OBOR. Given the China’s closeness to Pakistan and its attempt to win the global leadership through OBOR, which will influence India’s neighbor, challenges are thrown to India to increase hobnob with Bangladesh and Myanmar – a new shift to India’s foreign policy with its neighbor after Modi-led BJP government came in power in 2014.
India will be cautious to join OBOR, as this can help China only for its globalization. In this perspectives, China’s attempt for globalization may prove bane to India.
The truth of the matter is that Trump’s protectionism may prove boon to India. Scrapping of USA’s membership of TPP is a case in point. India is not a member of TPP. Concerns were looming large over India’s trade with USA , since USA accounts for a big share of India’s global export ( 14 percent). Textile was the biggest threat for India’s trade diversion. It is the single major item of India’s world export and USA accounts for 40 percent of India’s total export of textiles. Vietnam would have been the most beneficiary and unleashed tough competition to India’s export of textiles in USA in TPP. With USA leaving TPP, a new lease of life was given to India’s trade with USA.
The charm for growth by globalization has ebbed. The Economist said “the world is loosing the taste of global business”. Success of growth based on inclusive growth usher in a new role for India in global growth. In other words, India is to reap the benefits in the vortex of protectionism and globalization.
( Views are personal)