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US-China Trade Truce Warms Up Sino-India Ties And Strengthen India’s Stand On RCEP – Analysis

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The G-20, though initiated to mitigate global financial woes, demonstrated a paradigm shift to abate global trade tussle at Buenos Aires in Argentina. The summit emerged a great success with US- China trade truce for 90 days, even though it was not the main agenda.

Trade war crippled the global trade after Trump administration waged into a trade war against China to safeguard American job seekers. It imposed 25 percent tariff on steel and aluminum and proposed another 25 percent tariff on US 200 billion imports from China , beginning from January 2019.

The underlying force behind the truce was both leaders’ political will. Both were convulsed by domestic compulsion. Trump’s compulsion was US Presidential election in 2020 and Xi Jinping’s climb-down from retaliation was the failure to uplift the Chinse economy , which showed rare sign of recovery from the down turn.

The trade ceasefire , even though temporary, gives a breathing time to China to reduce trade deficit by substantial increase in imports of agriculture products from USA and to exit from tit-for tit actions by withdrawing high import tariff on American cars

The trade war started to bite American farmers. Stock market dwindled, erasing the benefits which stemmed from 2018 gain amid trade jittery. IMF downgraded the growth rates of both China and USA in 2019, citing the impact of trade war. It forecasted the growth of China and USA would decline from 6.4 and 2.7 percent to 6.2 and 2.5 percent respectively in 2019.

In the summit, China agreed to negotiate immediately on “forced” technology transfer, intellectual property rights and cyber threats.

Whether or not the truce lingers after 90 days, the temporary truce makes a breakthrough in melting the ice and brings world’s largest two economies on discussion table to avert the trade war.

The truce gives opportunity to India to balance its power game with China and RCEP, where China is the major stakeholder . Paradoxically, trade war was not bane to India. It was rather propitious for warming up economic ties with China. Nevertheless, it weakened its stand on RCEP.

China is an export base economy and USA has been the driving force for China’s upsurge in the economy since it is the biggest importer of Chinese goods. Nearly one-fifth of Chinese goods are exported to USA annually. With the onslaught of tariff war, Chinese goods became expensive. It caused major dent to China’s exports and eventually imparted shadow on Chinese economy.

Threatened by US market closer , China diverted attention to India , which is considered a big global consuming market. With high growth trajectory, India provides a bigger market for Chinese goods, which , it is believed , will counterbalance the damage to export to USA.

A new synergy arose. Both India and China oscillate in the hope for warming the relation. Till the trade tussle, India was keen to improve the relation with China. But, China was reticent. After trade war, China bent towards India and vies for India’s heart for improving economic ties. Global Times – the Chinese official media – quipped that “ a new day has dawned for the two countries , which were once at odds”.

In the trade front, China agreed to increase import agricultural products from India, which hitherto were imported from USA. Soybean is a case in point. China reduced import tariff on soybean meal from India to encourage exports. It is unlikely that the temporary truce will halt India’s new export opportunities to China with the uncertainty prevailing.

China has been on investment binge since Modi –led BJP government came in the power at Centre. Chinese investment has become the driving force for upsurge in start-ups – a novel scheme by Modi government – to enhance job opportunities. Besides, Chinese investment catalyzes a strong platform for electronic manufacturing. More than six Chinese reputed mobile firms set up their manufacturing facilities in India .

RCEP – the largest trade block comprising of ASEAN plus six countries – received a new lease of life after the trade war broke. Needless to say , RCEP went morose after missing two target dates of launching. China was hurrying to conclude the deal. Paradoxically, trade war weakened India’s dilly-dally stand for non-commitment to RCEP, with the USA shutting the door for exporters.

Since beginning, India was opposing the launching of RCEP without inclusion of service trade , such as IT services. It also expressed concern for fair trade in the block , apprehending that it would pave the way for Chinese goods’ backdoor entry to Indian market.

The trade war helped China to woo the support of members of RCEP , particularly ASEAN countries, coaxing them that it would emerge a major export destination for them after USA hardened its protectionism. China is the biggest export destination for ASEAN , followed by USA. Duty free entry in RCEP will bolster ASEAN’s export to China, unleashing new lease of life to offset the damage caused by US high tariffs.

With the trade war tapering, RCEP losses its strength in the global trade. This will concurrently strengthen India’s non-committal stand to the block, with the USA relaxing its market. USA is the second biggest export destination of India..

To sum up, the trade truce in G-20 was a boon to India

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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