India became the fastest growing economy against all major economies of the world by 7.5% growth rate in the FY2018. The primary reason being the Indian IT sector which contributed revenue of $154 billion (according to FY2017) to the economy. Despite this, India may face major consequences due to the US-China trade wars which are intensifying with each day.
US-China trade war began in January 2018, when the Trump government imposed tariffs on Chinese solar panels and blocked technology transfer to major Chinese companies. China retaliated by imposing tariffs on US fruits, pork, recycled aluminum and steel pipes.
This germinated many demands and negotiations originating from both the ends. Now with the US imposing 3 rounds of tariff on Chinese goods worth $250 billion, and with both the forces not giving away, this war might take the shape of the largest trade war in the history.
Impact on India
A war of this nature would affect the global economy in general and Indian economy in particular. As these two forces will turn to India for substitutes, India will have a stiff in bridging the gap between demand and supply.
The effects of this won’t be limited to one sector instead it might have a manifold effect:
A rise in imports:
The intensity of the war has directly affected the US-India trade relation. Indian export may gain in textile, garments and jewellery industries. Also, India which has a trade deficit of $60 billion from China will be favoured, as President Xi Jinping plans to remove tariff from Indian exports. China will be dependent on India for aluminium, steel and cotton exports. However, China will look for alternatives of crude oil which may result in a fall of crude oil prices, which will precisely benefit India.
A decline of Rupee:
Indian rupee which is facing an all-time low since the last few months, resulting an inflation in prices of crude oil and other major imports. India is dependent on US for its major imports like nuclear reactors, mineral fuels, aircrafts, medical equipment to name a few. A rise in duties of these products would immediately affect the Indian key sectors.
Hike in Interest rates
A small rise in the interest rate will come off as a crash on the Indian equity market. American investors having their bonds and equities in the Indian share market would withdraw and instead invest in US which ensures higher and better interest rates. This has culminated a volatile and stress in the money market as a minute turmoil in American finances would have a large-scale blow on the Indian market.
In the end, it can be concluded that Mr. Trump’s decision to take on their biggest trade partner will have an adverse effect on the consumers of both the countries and can cause problems for the global economy. India, however, should take full advantage of improved relationships with both the superpowers.