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Last Updated : May 11, 2020 06:20 PM IST | Source: Moneycontrol.com

Trade | Implications of the US-China trade deal on India

The deal is another blow to already weakening multilateral trading system under the WTO. With bilateral quid-pro-quo deals, US President Donald Trump is sinking the WTO dispute settlement mechanism further. These trends should be worrying for New Delhi.

For almost two years, the global economic system has been under stress due to trade tensions between China and the United States. Out of about $20 trillion world merchandise trade in 2018, these two giants contributed about $9 trillion. As per the US Department of Commerce, total goods and services trade only between US and China was about $740 billion in 2018. So, confrontation between them created serious uncertainties for the global trade regime as well as for the global economy. Now any truce between them, even if limited, is a relief for the markets.

After many months of negotiations, a 96-page document with eight chapters as ‘phase 1’ of the agreement has been signed. It is agreed that compared to 2017 figures, China will buy an additional $200 billion of US goods and services over the next two years: $80 billion manufacturing goods (including aircraft, vehicles, iron and steel, pharmaceuticals and, optical and medical instruments); about $50 billion energy products ( LNG, coal and crude oil); about $40 billion services (financial services and insurance, tourism); and about $30 billion agricultural goods (oilseeds, meat, cereals, cotton, seafood etc).

Different chapters of the agreement also deal with intellectual property, technology transfer, financial services, macroeconomic policies and exchange rate matters. Some of these commitments were already made at the G20 and WTO summits. In exchange, the US will also reduce tariffs for $120 billion-worth of Chinese products from 15 per cent to 7.5 per cent.

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This is obviously a limited deal than what both were trying to achieve. There are still issues concerning Chinese industrial subsidies to its State-owned companies; Huewei’s 5G services as well as enforcement and interpretation. Still, there are remaining high tariffs on many items from both sides. Overall, however, the deal provides an assurance to markets that at least things will not become worse in the coming months. The US-China truce along improved Brexit certainty will provide some stability to global markets.

The agreement, however, is another blow to already weakening multilateral trading system under the WTO. With bilateral quid-pro-quo deals, President Donald Trump is sinking the WTO dispute settlement mechanism further.

These trends should be worrying for New Delhi as India trades with its major partners viz China, the EU and the US through WTO rules. Last year, out of a total $840 billion Indian goods trade; China, the EU and the US accounted for about $300 billion. The FTA negotiations with the EU are struck since 2013. The RCEP seems history. Any major FTA with the US is also unlikely to happen any time soon.

The limited deal also shows that with sustained efforts, some concessions can be gained from China. As India also has a huge trade deficit of more than $50 billion with China, it has to get its acts together for negotiating a similar deal with Beijing. A high-level economic and trade dialogue mechanism was established during the informal meeting between President Xi Jinping and Prime Minister Narendra Modi in Chennai last year. So far little is known about progress made by this mechanism.

Similarly, India is also negotiating with the US. Some of our products have already lost the GSP advantage. It is becoming clear that these deals are dependent not only on simple trade dynamics but also on strategic positions taken by India on Indo-Pacific and the Belt and Road Initiative (BRI). Free from a China deal, Trump may now target India to ‘fix’ another trade issue. Already reports indicate that some US-India ‘mini trade deal’ focusing on key interests from both sides is possible during Trump’s India visit in the coming weeks.

Both the US and China are India’s key trade partners. We need to study the list of items agreed between the US and China carefully. Some of the products which China has promised to buy more from the US viz. meat, fish, cotton, iron and steel etc. might affect our own exports to China.

At this stage, problems for India Inc. are complex. It is not just resolving the issue of external demand. There are also serious supply side constraints related to capital, technology, infrastructure and global value chains. With slowing economy and cautious approach to global integration, competitive scaling of production of many products may become a serious issue.

As India was somewhat insulated from the consequences of US-China trade war, it will also have limited capacity to take advantage from the fall in trade tensions and possible increase in global growth.

Gulshan Sachdeva is Jean Monnet Chair and Chairperson, Centre for European Studies at Jawaharlal Nehru University. Views are personal.
First Published on Jan 22, 2020 09:21 am
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