There are never ever any winners in trade war.
by ATRISHEKHAR
INTRODUCTION
Present wave of economic nationalism and protectionism, especially
US policy on Chinese, Indian and Japanese imports
THESIS
The big winner of the trade war seems to be “bystander” countries with deep international ties. From the US perspective, the trade war did not lead to the advertised reshoring of economic activity, at least in the short to medium term.
BACKGROUNDER
The United States-China trade war started in 2018 and has never officially ended. So, which side has been “winning” it? Recent research offers an unambiguous answer: neither. US tariffs on Chinese goods led to higher import prices in the US in the affected product categories, and China’s retaliatory tariffs on US goods ended up hurting Chinese importers. Bilateral trade between the two countries has tanked. And because the US and China are the world’s two largest economies, many regard this development as a harbinger of the end of globalisation.
HOOK
Public support for free trade is shrinking and the long-standing political consensus that trade liberalization is beneficial is under attack.
Yet the “deglobalisation” argument ignores the many “bystander” countries that were not directly targeted by the US or China.
To be sure, one would expect exports from third countries (Mexico, Vietnam, Malaysia, etc) to take the place of Chinese exports to the US. But what is surprising is that these countries increased their exports not only to the US but also to the rest of the world. In fact, global trade in the products affected by the trade war seems to have increased by 3 per cent relative to global trade in the products not targeted by tariffs. That means the trade war did not just lead to reallocation of third-country exports to the US (or China); it also resulted in net trade creation
Given that trade wars are not generally associated with this outcome, what accounts for it? One potential explanation is that some bystander countries saw the trade war as an opportunity to increase their presence in world markets. By investing in additional trade capacity or mobilising existing idle capacity, they could increase their exports without increasing their prices.
Another explanation is that as bystander countries started exporting more to the US or China, their unit costs of production declined, because economies of scale allowed them to offer more at lower prices. Consistent with these explanations, our paper finds that the countries with the largest increases in global exports are those in which export prices are declining.
While the net effect of the trade war on the world economy was an increase in trade, there was enormous variation across countries. Some countries increased their exports significantly; some increased their exports to the US at the expense of their exports elsewhere (they reallocated trade); and some countries simply lost exports by selling less to the US and to the rest of the world. What accounts for these differences, and what could countries have done to ensure larger gains from the trade war?
Again, the answers are somewhat surprising. One might have guessed that the most important factor explaining countries’ differing experiences would be pre-trade-war specialisation patterns. Countries such as Malaysia and Vietnam, for example, were lucky to be producing a heavily affected product category like machinery. Yet specialisation patterns appear to have mattered little, judging by the big export winners of the trade war: South Africa, Turkey, Egypt, Romania, Mexico, Singapore, the Netherlands, Belgium, Hungary, Poland, Slovakia, and the Czech Republic
Supply-chain effects also may have played an important role. In a prescient policy briefing based on private conversations with executives at large multinationals, analysts at the Peterson Institute for International Economics predicted in 2016 that US tariffs would “set off a daisy chain of production shifts.”
conclusion
Returning to our initial question, then, the big winner of the trade war seems to be “bystander” countries with deep international ties. From the US perspective, the trade war did not lead to the advertised reshoring of economic activity, at least in the short to medium term. Instead, Chinese imports to the US were simply replaced by imports from other countries.
From the perspective of “bystander” countries, the trade war, ironically, demonstrated the importance of trade integration, especially deep trade agreements and FDI. Fortunately, the Sino-American trade war does not spell the end of globalisation. Rather, it may mark the beginning of a new world trading system that no longer has the US or China at its center.
If a company decided to shift production of a product targeted by Chinese tariffs to a third country, this would necessitate a reshuffling of other activities in the third country, affecting multiple other countries in turn. The exact pattern of these responses would have been hard to predict, given the complexity of modern supply chains. But a country’s degree of international integration appears to have been a decisive factor in a firm’s relocation decisions.
INDIAN PERSPECTIVE
China is India’s biggest trading partner in the world and India also has the largest trade deficit with China (which means that India imports more than it exports to China). This deficit has doubled in less than a decade.
The trade tensions between the US and China have resulted in some opportunities for Southeast Asian nations. Indian economy could be a beneficiary too. This trade war will help India to tap the international market very easily.
India could increase its trade particularly on which the US has imposed heavy tariffs on Chinese goods and services.
The United States and China are major trade partners of India in international business and can fulfill the huge gap of trade deficit through export.
Diversification of investment flows in automobile, agriculture, equipment, healthcare, electronics & garments manufacturers to seek India as one of the sound alternative
India needs to fast-track innovative governance policies and infrastructural facilities to attract foreign investors.
India is the only country in the world that can match the scale of operations after china and can meet the market requirements on time.
India can seek more opportunities in the enhancement of information and communication technology, eCommerce, the chemical industry, outsourcing, and the automotive sector.
The great saints of India, Swami Vivekananda once told to a group of journalists at the Michigan University,
“This is your century right now, but the twenty-first century will be the century of my mother India”.