As we know that protectionist agenda of United States has all set to alter the ongoing global trading equations, leaving greater room for the other emerging players.In this situation, India would prove promising alternative for aggrieved multinational corporations and trading substitute for both leading economies as well. But, unless India ensures business friendly atmosphere and level playing field for domestic players, it seems too difficult to grab the forthcoming opportunity.In this blog “Indian benefits from trade war”, in the light of present situation, I am going to highlight the promising areas of possible benefits.
China as manufacturing global hub
At the present, unquestionably, China is the global manufacturing hub with around 40 percentage of global production.One question often arises out in our mind that what makes China a global giant. It is the low cost of factors of production or low production cost. Though the answer looks too simple but it is not so.In reality, it took China a lot of years to reach at this point of recognition.
For this, credit goes to Chinese toiling efforts right from the policy decisions to allow foreign direct investment to create congenial atmosphere for business. Many attributes Chinese success for its export driven growth strategy.
But, now it is true that Chinese economy is largely industry driven with half of global production. Obviously, industrial sector constitute more than 40 percentage of GDP.
Overall, we can conclude that it is the low wage rates, better service, favourable infrastructure,production capacity,assured market and export facilities are some of factors that powered China to be the manufacturing global giant.
Tarrifs are big blow for competitiveness of Chinese goods
Now, the shine of made in China looks dim. It is too difficult for Chinese industries to bear the burden of US tarrifs. Prices will definitely go up and it is enough to outweigh Chinese goods in the global market. For your understanding, US is the major importer of Chinese goods.
Only Chinese domestic market is not enough to absorb over capacity production.Hereon,Chinese needs to find out someone else to dump over production with bailout incentives. But, this is not sustainable viable option to survive.
Apart from this, it is hardly possible to accept the terms of US through negotiations. I don’t think president Xi xinpig will succumb to the pressure.
On the backdrop of trade war, many multinational corporations are making theirs mind to left China. Trump repeatedly appealing them to come back to establish their business in US. Considering the higher wages, it seems difficult. In this situation, India would be a better option.
India’s present position looks fairly better to reap benefits of trade war tension
For India, both leading nations US and China are the major trading partners. If we think about the trade imbalance, India has trade deficit with China but surplus with US. Presently, India is trying hard to reduce its trade deficit with China. At the same time, America is urging India to libralize certain rules in favour of US goods. Recently, US imposed tarrifs on Indian steel and aluminium and India too responded in the same manner.
For better understanding, we must take a deeper insight of current situation.
China isn’t imposing tariffs on everyone but US and giving indirectly green signal for Indian goods. On the other hand, though US has taken certain steps to impose tarrifs on Indian goods but not with the same severity as it did so against its arch rival China.
Undoubtedly, here, India has a lot to grab by displacing Chinese export in US and US export to China. However, one thing India must not forget that there is possibility of china to dump its low cost production in Indian market.
India is the best destination why?
If we compare between India and China in terms of wage rates, domestic market as well as Asian market accessibility, service and governments business friendly policies ,India should be the first choice. Indian economy is around 3 trillions and according to Indian Prime Minister, it will reach at 5 trillions by 2022.
In terms of wage rates, Indian wage rates are not higher than its counterparts. If we compare, then chinese have upper hand. Like Chinese port, India too has well developed port facilities. Rising purchasing power is the good symptom to attract manufacturing big players.
Infrastructural bottlenecks in India may limit the possibility to be beneficiary
It is undeniable reality and India needs to work on it. Unless they provide world class infrastructure facilities, it is beyond imagination to be the global manufacturing giant. So far, Chinese pumped a lot of money to upgrade its infrastructure. In terms of transportation, electricity generation,India is lagging behind.
Other challenges that need to be removed
Land acquisition is very sensitive issue. Peoples sentiments are attached to theirs inherited property. It is very difficult for the Democratic government to implement bold decisions. It is onto the government to convince people and make available required land to establish big firms. So far, we have witnessed many agitations to oppose land acquisition by government or firms.
Well, now it is clear that India has great chance and scope to yield desired outcome out of ongoing trade war between US and China. Considering the present power balance of the world, it looks like the chances of reconciliation between two economic giants are not promising.
Though there is silver lining, in order to materialize it, Indian government has to work on multi-pronged strategy within the stipulated time.
Otherwise, the upcoming opportunities will be grabbed by someone else. Fortunately, time factor is in favour of south Asian giant, but they have to do much more to materialize it effectively.