Quick diligence, to benefit from USA-China trade friction thaw

Recent global uncertainties have arisen mainly because of accentuating trade tensions between the two super powers – the USA and China. India’s stock market has been moving up and down in sync with the ups and downs of trade tensions.

These for the time being, have hopefully subsided, thanks to the phase one trade deal between the two powers expected to be signed early January. The US has agreed to reduce some tariffs in exchange for big jump in Chinese purchases of American farm products.

Beijing is opening its oil, telecom and power markets wider to private competitors. Already steps by both have been initiated in keeping with the spirit of the interim trade deal. However the present calm is not likely to prevent the US-China trade war rhetoric to keep on emerging again and again.

What has been accomplished is a tentative phase one deal. Complete details are still not fully known. On positive note, the tariffs that were to come into effect on 15 December did not materialise.

A lot depends upon two factors – durability of the understanding that there would be no further major escalation of the turmoil and the trade tensions do not get complicated with technology issues. Certainly the situation has become better as compared to the environment during Sept-Oct of 2019.

The world's two biggest economies have been exchanging blows for over a year and a half, with tariffs impacting hundreds of billions of dollars in two-way trade.

Over time, tensions have embraced a whole host of issues other than trade like technology, national security, human rights, data disputes, digital taxation, currency issues and control over natural resources. The ongoing confrontation is basically about which country is globally more powerful.

Technology supremacy and global trade tensions have been most prominent, that could disturb future global balances. Also true that several Chinese tech companies want to work with American companies to promote technological developments.

International trade has been slowing more than global economic slowdown. Former RBI Governor Y V Reddy sees in the trade wars a collapse of the global trading system, evidence of which is obvious like the WTO continuously losing its relevance. In a way, what the WTO has been doing over the years, the super powers have started emulating the same in their bilateral relationships.

Global slowdown has been mainly due to rising protectionism across countries. More damaging development is the tension spilling into business and economics of nations, thereby entrenching global slowdown including emerging market slowdown.

Axing of the Bill Gates’ nuclear reactor in China was a trade war warning, implying about a five-year setback for technology and scientific research. US companies doing business in China fear living with unwelcome compromises.

US subjected Huawei Technologies Co. to a variety of sanctions, citing security concerns. Such a move is attributed to fear of China’s growing influence over fifth-generation networking gear and artificial intelligence.

Latest is USA wanting the World Bank to "graduate" China from getting concessional loan programs that are meant only for low- and middle-income countries.

Despite both the Economic Survey 2019 and NDA-II’s 1st Budget, clearly establishing the importance of India’s exports for attaining its ambitious $5 trn economy mark by 2022, the trade numbers are not showing any promise. India can still tap ample opportunities from thawing of the USA-China trade barriers.

With the globe moving towards a multipolar world, India stands a chance of playing a decisive role. India has been late in grabbing emerging opportunities arising from the accentuating cold war due to its economy lacking global competitiveness.

It needs to move fast, through innovative policies and clear focus on infrastructure development. Indian authorities have started speedily putting in place reforms practically in all sectors of the economy alongwith a holistic perspective on critical economic problems so as to be able to capitalize on the trade war.

Though India gained about $755 mn in additional exports to the USA in first half of 2019 because of the trade war, a lot of ground still remains to be covered urgently.

Major policy decisions aimed at making the economy globally competitive include concessions for Tesla and 323 other firms wanting to shift out of China to India and providing the firms land and other facilities to set up factories in India.

A number of laws are getting focused attention that would change the way India does business. Insolvency & Banking Code is considered one of the biggest success stories towards de-clogging the economic system from ill-effects of stressed assets

There are solid plans to boost select Indian exports that have suffered due to competitive exports from smaller economies like Bangladesh and Vietnam. India could be the single largest beneficiary if the likely multilateral cut in service trade restrictions materialise.

India could become an ideal candidate to get businesses from both China and the USA, but only if it plays its cards well. It is trying hard to accelerate its economic growth with planned mega shopping festivals, aiming at India becoming world’s biggest start-up center and planning to spend $1.4 trn on its infrastructure in the next five years.

India’s economy sorely needs the boost for long-term growth providing employment for a bulging workforce and poverty alleviation. India can learn from China’s response to its deteriorating terms of trade which has implemented reforms to enhance its select industries to get globally integrated.

India apart from fast forwarding its reform process may need some new dosage of alertness and nimbleness inbuilt into its policy so that it meaningfully adjusts with the changing global landscape.

Though Ease of Doing Business (EoDB) rank improvement (up 14 places to rank of 63) is a good sign, India needs to do more, such as, focussing more on actual implementation of policies announced and ushering in cost competitiveness.

Direction and approach towards EoDB needs to be reviewed. Government also needs to institute policy measures to nurture entrepreneurship and create an ecosystem driving holistic development.

Global economic environment has become increasingly riskier and more uncertain. An index from ‘Policy Uncertainty’, a geopolitical think-tank, has placed global economic uncertainty at its highest since this gauge got created in 1997.

The writer is an economist, and a former director of Economic Research & Training Foundation.

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