Trade Wars
could be a boon for India
The Article appeared in the Free Press Journal Mumbai
The trade war between US and China has created a turbulence in the
global affairs and the trade between nations will undergo a
change if the issues between two nations are not resolved soon. In the month of
November, US had the highest trade deficit with China. The two countries so far
imposed tariffs on $ 360 bn of merchandise trade between them.
US-China trade war will have an adverse effect on many economies which
are depending on trade and it will distort the trade flows between countries.
The war is likely to push the production to more expensive locations which will
lead to price rise and reduced efficiency. Global trade growth will take
a beating, existing global supply chains will be disrupted and investor
confidence will dampen. There are two opposite views on What US will do
once the year 2019 dawns. It will go ahead with the proposals and start
implementing them. Other view is that, once we come closer to 2019, US could
change its stand and moderate the proposals.
While, many countries will be affected by the Global trade war, few
countries, will also be winners in this scenario. US and China will explore
options for suppliers from other countries to fulfil their demand. They will
develop alternate markets for their products and seek new sources to meet their
local demand.
The countries which are likely to benefit include, Mexico (auto exports
to US will increase), Europe (can export more agricultural produce to China)
and many of the Asian countries , especially ,India, Malaysia, Vietnam,
Indonesia, Thailand, Sri Lanka, Pakistan, Cambodia, Myanmar can explore the
opportunities to increase their exports.
India can focus on increasing the exports from ICT, Automotive, Apparel
and Readymade sectors. ICT is one sector, where US government has increased the
tariff for imports from China. This is the largest category of imports from
China and it amounted to $ 150 bn a year. This will help to hamper the China
initiative of Made in China 2025 , which is focussed on increasing the growth
of the hi tech sectors in China. India witnessed a phenomenal growth in mobile
penetration and other related ICT sectors in the last few years. India had come
out with a policy of Hardware manufacturing and few large players, especially
in mobile phones had announced their plans for big investment in this sector.
India has a very good eco system for hardware development and this could be a
good opportunity for India to increase the growth of hardware Industry. The
initiatives in India like Make in India, Industry 4.0, will make India
attractive for foreign companies to make the investments here.
Automotives. China exported finished vehicles of US $ 7.2 bn. But
exports of Auto components from China was at $ 31 bn in 2017. US was the main
destination for Auto component exports from China. This is likely to
affect the Chinese exporters. China Imported Finished Vehicle exports to
the tune of US $ 10.3 bn. But most of the brands exported to China, have their
local presence in China. Auto components is a very big opportunity. In the last
few years, India has become very competitive in Auto sector and emerged as the
most preferred location for manufacturing small cars in the world. Further, the
Eco system for Auto sector in India is well developed. All the players in the
market invest on innovation , R&D and produce global quality vehicles
today. Further, the FDI regulations for this sector are very liberal. Indian
Auto and Auto component manufacturers can capitalise on this emerging
opportunity.
Apparel and readymade Garments. China is the leading producer today and
they exported $ 38.7 bn to US in 2017. In 2016, China had 36.2% of global
textile exports and 34.5% of global clothing exports. The new tariffs by
US government , will create significant opportunities for other countries who
are leading exporters in the world. Bangladesh and Vietnam rank second
and third in world in exports. But India has the raw material , cotton
and a vibrant Industry. At present, high quality yarns from other
countries are not allowed to be imported into India. If India relaxes , this
norm, India can move higher up in the value chain and aspire to become the
second largest exporter in the world.
India can fill the void of exports from US to China. This will be mainly
in the area of agriculture and we can grow crops which are suited to Chinas’
requirements and ensure China continues to buy cotton from us and start
importing other agricultural produce. This will also help in achieving the
objective of doubling farmers income and increasing the productivity in
agriculture. India has a very huge trade deficit with China. By promoting Agri
Exports, the trade deficit with China could be reduced.
By focussing on these sectors, India would be able to significantly
increase its exports and it will also aid in achieving the export targets
set by the Government and reduce the trade deficit. The more investment
friendly / export friendly policies could be drawn up in these sectors ,
keeping the export markets as the focus. This is the right time for India to
accelerate the development of these sectors.
R Kannan is Head, Corporate Performance Management, Hinduja Group. The
views are personal.
