India's key trade partners, the United States and China, just announced a truce in their 18-month long trade war after China agreed to boost the purchase of US goods and services by additional $200 billion in two years. The US, in return, will withdraw the additional tariffs it announced on some Chinese products.
Will it impact India's plans to deepen its engagements with both the US and China? Especially since India was hoping to become one of the sourcing destinations for both the countries when retaliatory tariffs and restrictions on trade make some products more expensive and hence alternate markets become more attractive? The answer is 'no', at least for now.
Firstly, the truce itself is not complete. It is just the beginning. The US decision is partially to put on hold or cancel its planned decision to slap additional tariffs on products like toys or cellphones. Wherever existing tariffs have seen a reduction because of the truce, the 7.5 per cent tariff rate still remains.
Further, a huge set of products are still carrying the high tariffs that were imposed by both countries as part of the trade war. A 25 per cent tariff on $250 billion worth of Chinese goods imported to the US remains and China's retaliatory tariffs on goods worth over $100 billion also remain. Until further negotiations between the two countries lead to a substantial reduction in tariffs across the board, the opportunities India was looking to explore, more or less, remain intact.
Secondly, trade experts are of the firm belief that even if there's a rollback, it is likely to be from 25 per cent to say, 10 per cent and not a complete rollback, which leaves some cushion for India. They also point out that India was not looking at the US-China tussle as just another trade opportunity but to attract investments.
Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations, says the investment part is already beginning to happen. Chinese companies, whose main market is the US, are now coming to India for investment as they feel even 10 per cent tariff may take away their competitiveness, he adds. "They are looking to invest into the Indian MSMEs (small and medium scale enterprises) as they (Chinese) feel Indian MSMEs have the flexibility to execute such orders if some capital or technology is infused into them," he says.
It seems small industrial towns like Ludhiana and Coimbatore, particularly with their prowess in engineering, are the focal points of such investments. And that's good news.