How will India be affected by the on-going trade war between USA and China?

For example, President Trumps introduced 25 percent tariff on more than 1300 Chinese goods. In response, China approved its own tariffs on American imports. This retaliatory measure hurts many of US’s exporters, including soybean production companies who export 40 percent of their outputs to China. With high-pressure tariffs burgeoned on them by Chinese authorities that hampers the growth of their whole industry, it’s very likely that they would create pressure in their home country, lobbying to go easy on China and the tariffs on their imports. This is just an example of one industry; there are many in the home that are hurt by USA’s own attempts to limit trade with China.

(The Straits Times)

So, yes, there are some tensions between USA and China. But no real trade war is exactly going on between them. It’s all a big hype by the mainstream media to spread FUD, which might eventually hurt the new investors. Also, if we look closely and understand the scenario with sanity, the round of negotiations between the two nations is imminent. And they will eventually get to an agreement.

That being said, the current situation – which is bound to be short-lived – will likely help few sectors of India, if Indian government decides to take a soft stance. Continuing with the above example of soybean production, if the manufacturers are finding it difficult and costly to do trade with China, India could easily leverage on that; there could be plenty of opportunities for us. However, with how things are right now, the Indian government doesn’t seem to be in the mood of taking sh*t from the USA. Continuing the trend of EU and China, India, too, has decided to increase the tariffs on few of USA imports in retaliation to US’s tariffs on Indian steel and aluminum.

So, the on-going hype of trade war between USA and China can benefit India in the short-run. However, India doesn’t have a proper plan to bank on that opportunity.

As for long-term, if the trade war does happen between these two countries on a large scale – meaning, the negotiation between them fails – it would be bad news for the global economy. It would hit the stock market hard. And we could see a scenario like that of Financial Crisis 2007-2008, the possibility of which has been looming high for long. There might be a big shakeup in Fed’s interest rate, which can cascade into the outflow of foreign money from the Indian market. This would hamper country’s growth story and increase the inflation rate. With India already struggling with the high unemployment rate, a mix of inflation in the economy would be a very bad news—more so for the marginalized communities, whose population goes over hundreds of millions of people here.

But all these are far-fetched ideas, reserved only if the current scenario between USA and China escalates, which doesn’t seem to be happening really. So, relax! As of now, everything seems to be in control. If you’re an investor, be careful of all the market news you’re consuming.

(Courtesy: Bloomberg)