As the dust begins settling on the United States (US) elections and Donald Trump is now President elect, the world considers the foreign policy challenges and opportunities that arrive with his leadership. For the second largest economy, China, a big source of concern is tariffs against Chinese products. During the campaign trail, Trump had stated that he would impose at least 60% tariffs on Chinese imports and 20% tariffs on imports from all other countries. In 2018 and 2019, the Trump administration had imposed tariffs on approximately $380 billion worth of Chinese goods, resulting in a tax increase of nearly $80 billion. The tariffs were implemented under Section 301 of the Trade Act of 1974, which allows the President to impose tariffs in response to unfair trade practices.
Even though China is a major economic partner of the US, it engages in unfair trade practices, which include trade in illicit goods, currency manipulation, theft of sensitive technologies among a long list of others. While the trade war between the US and China is attributed to Donald Trump, fact remains that outgoing President Joe Biden had also taken several measures to protect the American economy from China’s unfair trade practices. In May this year, Biden directed his trade representative to increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion of imports from China to protect American workers and businesses. Biden slapped major new tariffs on Chinese electric vehicles (EVs), advanced batteries, solar cells, steel, aluminum and medical equipment. He had stated that Chinese government subsidies ensure that the country’s companies do not have to turn a profit, giving them an unfair advantage in global trade; 100% tariffs were slapped on Chinese EVs.
The Biden administration continued from the previous Trump administration and the Trump administration this time will take off from where the Biden administration leaves. Fears of further escalation of trade wars are rife in most countries of the world. With regards to India, while there will be an increase in tariffs against Indian goods, they will not be as steep as those against China’s. In this context it becomes pertinent to find out the extent to which India will be able to leverage opportunities out of economic calamites. While the Biden administration slapped tariffs on Chinese products, several agreements to bolster trade and economic ties were signed, ranging from semiconductor fabrication to clean energy transition to defence industrial cooperation, including collaborations on jet engines, munitions, and ground mobility systems, to the "Innovation Handshake" agenda, which promotes cooperation between startups, private equity and venture capital firms, corporate investment departments, and government officials; to the minerals security partnership to diversify the supply chain for critical minerals; to the green transition fund to hydrogen safety. The two also have a renewable energy technology action platform to enhance collaboration on clean energy manufacturing and global supply chains to the international energy programme.
{{/usCountry}}The Biden administration continued from the previous Trump administration and the Trump administration this time will take off from where the Biden administration leaves. Fears of further escalation of trade wars are rife in most countries of the world. With regards to India, while there will be an increase in tariffs against Indian goods, they will not be as steep as those against China’s. In this context it becomes pertinent to find out the extent to which India will be able to leverage opportunities out of economic calamites. While the Biden administration slapped tariffs on Chinese products, several agreements to bolster trade and economic ties were signed, ranging from semiconductor fabrication to clean energy transition to defence industrial cooperation, including collaborations on jet engines, munitions, and ground mobility systems, to the "Innovation Handshake" agenda, which promotes cooperation between startups, private equity and venture capital firms, corporate investment departments, and government officials; to the minerals security partnership to diversify the supply chain for critical minerals; to the green transition fund to hydrogen safety. The two also have a renewable energy technology action platform to enhance collaboration on clean energy manufacturing and global supply chains to the international energy programme.
{{/usCountry}}Even under the Biden administration, the US was cautious towards China and embracing with regards to India. In all probability the trend will continue under the Trump administration. In the 20 years, supply chains across Asia became deeply integrated, and as an example, if a product is manufactured in Taiwan, it would be shipped in China and some component could be made in Thailand or Vietnam. If tariffs are slapped on China, a disruption in trade flows is seen, followed by a reduction in growth. However, India is not so integrated with the Chinese production supply chain. Thus, out of all the major economies in Asia, India would be the least impacted by tariffs against China.
Given constant supply chain disruptions, the China Plus One strategy has emerged in which companies and countries are increasingly pulling out of the Chinese economy to invest elsewhere. In the context of China Plus One, the most commonly mentioned examples are those of India and Vietnam. China is facing the biggest downtrend in its property marker. About 737 million square kilometres of real estate is available, and to counter that the Chinese government announced a stimulus over three years, the contours of which are not yet clear. If one invests in China, one will have to bet on specific companies and take tactical bets on those individual names and companies for those with higher risk appetite. As compared to that, under the current Modi administration in India, infrastructure is being built on massive scales and for investing companies, the earnings will be structurally higher and there will be less problems with valuations. Further tariffs on the Chinese economy brings in gloom for the world. However, for India, if strategically manoeuvred then the losses will be low and manageable.
This article is authored by Sriparna Pathak, associate professor, Chinese Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.