fter a quick lull in their bilateral trade tensions, the US precipitated its confrontation with the Middle Kingdom. President Donald Trump has already exacerbated the atmosphere in the Middle East by sending an aircraft carrier strike group and a bomber task force to send a ‘clear signal’ to Iran. This came after Trump last month refused to give waivers to countries like India from buying oil from Iran, in an attempt to reduce Iran’s oil exports to zero. US’s actions and its rhetoric could provoke Iranians in a manner that may lead to a full-blown military confrontation in the Middle East, which, if not checked immediately, can destabilise the world order and unsettle the global economy. Against the backdrop of the global slump, which has been on for over a decade now, such brinkmanship by the US will do no good to the prospect of a possible recovery of the global economy. A few attempts by the US to bury the hatchet with North Korea notwithstanding, there has been no progress in diplomatic relations between the two countries. Its relation with some Latin American countries continues to go downhill. Relation with its neighbour Mexico is messy. All this is not to include its negative equations with traditional adversaries such as Russia.
Just when it appeared the US and China were on the verge of rapprochement, Trump suddenly tweeted he was planning to impose 25 per cent tariffs on another $325 billion worth of Chinese imports from 10 per cent now. Trump demands China should reduce the $375 billion trade deficit and give more access to American goods in Chinese markets. He has already increased tariffs on over $250 billion Chinese exports to the US and threatened to raise tariffs on $200 billion Chinese imports to 25 per cent. In a retaliatory move, China, too, has slapped tariffs on some US exports to the country. There is a lot of uncertainty with respect to how the ongoing retaliatory tariff impositions between the two countries will pan out. Will a US-China trade war affect India? This may be difficult to say in ‘yes’ or ‘no’. The impact on India may be both positive and negative. On the positive side, India will try to fill the vacuum created by the disjoining of the US-China trade war.
India can become more competitive in segments such as textiles, garments, and gems and jewellery since India already has an edge in these items. However, considering the vast expanse of China’s exports to the US, it will be a tall order for India to fill the gap. A possible rise in capital flows to the country may strengthen the rupee. The rupee has hovered around 68 for over a month now. This trend can be due to the weakening of the US dollar. This will automatically create a negative impact on trade deficit of India, causing chain reactions of sorts. Economic growth and asset markets will be badly hurt by a full-blown trade war between the US and China. With the world’s two largest economies locking horns, the global economic order will sure be pushed into a danger zone. The ramifications will go far beyond trade and the impact on geopolitics will be far more serious.