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Trade war between USA and China can become a crisis for the world
The trade war between the US and China is not going to end in the near future. On May 10, 2019, the US increased the fee on Chinese products by $200 billion from 10% to 25%.

Apart from this, the US can impose 25% fee on the $300 billion import of Chinese products, which are currently free of charge. In response to this, China will impose a fee on the $60 billion worth of imported products from the United States from June 1, 2019. China had imposed a fee of $110 billion on US products last year.

Since coming to power, the US president, Donald Trump, has been consistently aggressive on the trade front. Donald Trump had come up with the US Business Policy agenda in 2017, under which efforts are being made to promote American sovereignty, implement US business laws, expand exports of goods and services, keep American intellectual property right intact, etc.

America's trade deficit has increased in the year 2018. Import is more than Export in America. However, strong economy and strong dollar supports import. Yet, American President Donald Trump has consistently adopted aggressive approach by making trade deficits an issue. However, in year 2018, Chinese Yuan dropped by about 5%, while the dollar index had increased from 92.24 to 96.17. Not only this, in the first quarter of fiscal year 2019, trade deficit decreased by $7 billion compared to the same period of last year.

On an annual basis, the import of commodities used in the year 2017 has increased in the year 2018. The slowest growth has been seen in the export of food and beverages. More than 800 American food and agricultural products have been charged as retaliation by China, European Union, Turkey, Canada and Mexico. Because of this, the export growth rate of agricultural products is slow. Approximately 20% of agricultural income is earned from exports. Therefore, American farmer's income has affected adversely due to ongoing trade war. There is a huge difference between the official trade figures released by the US and China. Figures from the Chinese General Administration of Customs show that Chinese exports in the US stood at $ 36.1 billion in 2018, which has come down to $ 31.4 billion in fiscal year 2019. Similarly, Chinese imports from the US were $ 13.9 billion in April, 2018, which decreased to $ 10.3 billion in April, 2019.

Monthly growth of imports has shown a decline in comparison to exports. This trade war can have a more adverse effect on China, because the base of US exports is larger than the basis of imports. By the way, America will not be unaffected by this trade war. If the trade war will last long, the export of American products may also be affected. This trade war may also affect the financial market, as China can reduce its presence in the US Treasury market. According to the Treasury and Securities Industry and Financial Markets Association figures, holdings of $1.13 trillion are lying in China's Treasury.

By charging 25% of fee on the $250 billion of Chinese products, the US is earning $62.5 billion of revenue per year, but the question arises here is whether this amount is enough to compensate the loss to America, because Political relations between these two countries are also becoming bitter. A recent survey of the Pew Research Center has found that the American public is more positive in terms of free trade agreements than trade war which is going on.

It is also believed that trade war between America and China can affect the global economy and the market of other countries, because it can take a year or so to normalize. Due to the low FDI inflow, India has not been affected by this war yet, but cannot say that our country will not be affected by this war in the coming months.

India is one of the fastest emerging markets in the world. It is also a leading country in terms of consumption and investment. For the last 15 years, India has been a significant contributor to the global economy, but the Indian market is facing many uncertainties, including the income growth of companies, lack of cash, global trade issues and slow pace of global economy. The crisis of IL & FS and credit markets has had adverse effects on the economy. 

However, there is rapid growth in consumption in India. Due to the debt crisis, there is stagnation, but the situation will improve if there is an improvement. All the macro figures, including inflation, fiscal deficit, are looking good. With the weakening of the global growth rate, there is no scope for the price of crude oil to rise very fast. Interest rates in India are high. To increase the demand, the government has to reduce the interest rates for increase the cash flow in the financial system.

It can be said that there is an atmosphere of sluggishness in India right now. If the appropriate policies are made then there can be positive changes in the situation, as the current investment flow is low due to higher credit interest rates. In fact, there is a need to cut policy rates by more than 0.25 percent in upcoming monetary review. However, even with a large reduction, the situation will not improve completely. For this the Reserve Bank will also have to take some other measures.

Here, some countries of the world are still influenced by the ongoing trade war between America and China. However, this trade war has not had a negative impact on India, but if this war lasts for a long time, its adverse effects may also be on India. So, the new government will have to take decision cautiously.

About the author Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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