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Trade War: Will India have an edge over China or

vice versa

Presentation By:Trupti Dhaygude PG2 (72)


US-China Trade Facts
• U.S. goods and services trade with China totaled an estimated $635.95 billion in 2017. Exports were
$130.36 billion; imports were $505.59 billion. The U.S. goods and services trade deficit with China was
$375.23 billion in 2017.

• In the month of January 2018 U.S. trade in goods with china was $55.7 billion. Out of which exports were
$9.9 billion and imports were $45.8 billion.

• China's competitive pricing is a result of a lower standard of living, Which allows companies in China to
pay lower wages to workers.

• The U.S. has suffered $1.2 trillion in economic damage from the theft of intellectual property, most of it
orchestrated by China.

• Chinese theft of American IP currently costs between $225 billion and $600 billion annually, according to
the Commission on the Theft of American Intellectual Property .
US-China Trade Facts : How it affect U.S. economy
• To offset BOP U.S. has issued Treasury notes to China who is the largest lender to the U.S.
government. As of January 2018, the U.S. debt to China was $1.17 trillion. That's 19 percent of the
total public debt owned by foreign countries. This gives China political leverage over U.S. fiscal policy.

• By buying Treasuries, China helped keep U.S. interest rates low. That helped fuel the U.S.

• If China were to stop buying Treasuries, interest rates would rise. That could throw the United States
and the world into recession. But this wouldn’t be in China's best interests.

• U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of
business. Many businesses reduce their costs by outsourcing jobs to China or India, which adds to
U.S. unemployment.

• It is estimated by the Economic Policy Institute that US has lost around 3.4mn jobs because of this trade
deficit from 2001 to 2015 of which 75% is from manufacturing sector
US-China Trade Facts : U.S. Exports and Imports
Export to China (2016) Import from China (2016)

•miscellaneous grain, seeds, fruit (i.e., •electrical machinery ($129 billion),


soybeans) ($15 billion) •machinery ($97 billion)
•aircraft ($15 billion) •furniture and bedding ($29 billion)
•electrical machinery ($12 billion) •toys and sports equipment ($24 billion)
•machinery and vehicles ($22 billion). •footwear ($15 billion).
•hides and skins ($949 million), pork •processed fruit and vegetables ($1.4
and pork products ($713 million) billion)
•cotton ($553 million). •snack foods ($213 million)
US-China Trade Facts : Current Situation
• A 30% tariff will be imposed on imported solar cells by US government.

• Trump will impose a 20% tariff on the first 1.2m imported large residential washers in the first year, and
a 50% tariff on machines above that number.

• 25% tariff on steel supplies and 10% on aluminum imports.

• The Trump administration is developing further anti-China protectionist measures. It may impose tariffs
on $30 billion of Chinese imports.

• China raised duties on $3 billion of US pork apples, and other goods in response to higher American
import duties on steel and aluminium.
• China announces tariffs on 106 US products on 3rd march 2018, in a move likely to heighten global
concerns of a tit-for-tat trade war between the world's biggest economies. the tariffs are designed to target
up to $50 billion of U.S. products annually. The 25 percent levy on U.S. imports includes products such
as soybeans, cars and whiskey.

• WTO rules mandate that a member state can claim exceptions from its trade obligations if the
member’s national security is at stake. This rule has been used by US to keep WTO away from the war
by stating the need to produce more domestically made steel and aluminium for its defence sector
Role of China in trade war
• In the case of dumping dollars, depressing the dollars value while increasing the value of all currencies
world wide. This would make U.S. goods and services more desirable, which would make a net flow of
trade dollars to the U.S. For once, the trade imbalances would swing in the U.S. favor.

• In the case of dumping bonds, if China sold their bonds to other entities, they would promptly lose value,
so China would find that the original ROI on their bonds would collapse, China would get a smaller return
than expected, and perhaps even lose money on their bond investments.

• In the case of “calling due” bonds, this would mean the U.S. would have to pay the bond. America would
simply print more money, pay them off, and then China would be stuck with even more dollars to dump in
trade with America.

• U.S. foreign direct investment (FDI) in China (stock) was $92.5 billion in 2016, a 9.4% increase from 2015.
U.S. direct investment in China is led by manufacturing, wholesale trade and nonbank holding companies.

• China's FDI in the United States (stock) was $27.5 billion in 2016, up 63.8% from 2015. China's direct
investment in the U.S. is led by manufacturing, real estate and depository institutions.

• Sales of services in China by majority U.S.-owned affiliates were $55.2 billion in 2015, while sales of
services in the United States by majority China-owned firms were $5.7 billion.
Impact of trade war on India
• In the event of the Trade War, India would replace Chinese exports in US in the areas of consumer
electronics, sports equipment, footwear ,clothing and agriculture till the time US increases its manufacturing
capacities.

• U.S. textile and apparel imports from Vietnam and India rose last year.

• Indian exporters may lose if dollar value goes down drastically due to sale of US treasury bonds. But it may
help India to tackle the rising crude oil prices.

• The Chinese goods especially the aluminium and steel would be dumped in India causing the struggling
Indian steel companies to face the losses.

• As per FDI statistics released by DIPP, the U.S. is the sixth largest source of foreign direct investment into
India. The cumulative FDI inflows from the US during April 2000 to December 2017 amounted to $ 22.06
billion constituting 6% of the total FDI inflows into India.

• The Trade war between the two greatest economies will create a global uncertainty causing investors losing
confidence which will eventually decline the world growth rate impacting Indian economy as well.

• For China it will difficult to have a trade war with India simultaneously.
Conclusion
• Industrial production in the United States increased 4.4 percent year-on-year in February of 2018.

• The PMI for the US edged up to 55.7 in March of 2018 from 55.3 in February, beating market
expectations of 55.5 mostly due to an expectation of inflation in steel related items.

• Thus, there is already set environment of inflation, a trade war at this time will accentuate it causing the
failure of Fed policy of rate hike. The inflation will again cause the import of goods from other nations like
Vietnam and India causing the manufacturing in US to go down.

• Bargaining power of India will increase.

•By dumping the dollars and bond China may face trouble as China has major investments in it.

•The Trade war between the two greatest economies may create a global uncertainty which causes investors
to lose confidence which will eventually decline the world growth rate impacting Indian economy as well.