The year 2019 saw the Indian economy overcome short term setbacks like the GST and demonetization to emerge with an uptick 0f 7.5% in its growth rate. The Indian rupee also emerged as the strongest in Asian markets adding cheer and optimism among investors, general public and stock markets. The tariffs imposed by the USA on China and the escalated tension between the two countries is, however, causing much concern especially with reference to the impact on the Indian economy and the trade-war that augurs poorly for global relationships and economies.
To be able to wisely analyze, plan and offset the effects of such a full-blown war in trading it is essential to understand the factors underlying the present situation.
The reasons:
Towards the beginning of the year, President Donald Trump of USA submitted China to allegations of trade practices that were unfair and claimed violations of intellectual property norms. This was followed by duty and tax impositions of 10% on aluminium and 25% on steel from all countries with the exemption of Mexico and Canada. The US being a huge Chinese goods consumer the imposition of such duties caused deterioration in relationships and impacted the Asian markets too.
An estimated one-sixth of the total 635 US $ business faced such tariffs. However round one did not cause the bells to toll. Again in round-two, Trump imposed 200 billion US $ tariffs on exports from China. This measure was seen as stoking the escalating fire between the two economic giants and places them on the rim of a huge trade war chasm.
In India, the tremors of the escalation of a trade-war were felt in the economic dynamics. This is so because a shortage of raw material or products means a price escalation for the final consumer. The tariffs and tax increase also ups the prices for them.
Effects on the Indian Economy:
Here are some of the predictable outfalls for the Indian economy.
The rupee value falls:
India does get affected by the worsening relationships and trade war escalations between two giants of the USA and China. Trump in late June went ahead with round two impositions of tariffs. In Indian markets, this negatively affected the trade deficit, and the rupee plummeted to an all-time low against the US dollar.
The stock indices decline:
The key parameters namely the Sensex and Nifty declined due to the caution of the investors in trading and withdrawal of foreign investors funds from trading. Both the BSE and NSE indices saw regular downward plunges fearing a trade war between the two mights of China and USA.
The imposition of duties:
In response to the imposed duty and tariffs on steel and aluminium, India owed 241 million US $ in taxes alone. In response and retaliation, India too imposed duties on US imports of 30 goods and products imported by it. The sum total of this exercise was that the US needed to pay 238million US $ to India in a counter move to increased tax debts. The manufacturing industries will see setbacks due to non-availability of materials and higher costs and the end users will suffer.
The requisite plan and strategy:
In the given circumstances the CEOs of Indian industries have to work hard to keep the economy stable and growing. The possible trade war if it happens will temporarily set all Asian countries back. The possibility of restoring a global trading forum would need to be explored by the newly elected government.
The trade war can cause a disturbance in the Asian region’s power equations spawning geopolitical pressures, economic setbacks and stock market crashes. What impacts Asia will also have global effects on all economies and hence will need astute planning and a non-military strategy to counterbalance it.
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