US President, Donald Trump took the trade war with China to an extreme new level by increasing the tariff from 10% to 25% on $200 billion worth of Chinese goods. The good on which the tariff is imposed include minerals needed for manufacturing, vegetable juices, leather handbags, etc.

The Cold Trade War

Since January 22, 2018, China and the USA have been involved in a trade war regarding the mutual imposition of tariffs on their goods. Ever since China and the USA are trying to cause distress in each other’s economies.

Talks are still going in between the two nations and their chief policymakers. Negotiations are underway, but none of the nations are ready to submit to the other.

Impact on the global economy

This cold war between the two largest economies of the world will affect not only the two nation’s involved but also the world economy as a whole. China is the world’s largest exporter of goods. United States of America and China are the largest economies of the world in terms of both nominal GDP and purchasing power parity. Thus, even a minute fluctuation in their economies has a massive impact on the global economy.

In order to strike back at the United States, China will reform it’s trade policies. A positive will be if China opens its economy to other countries and their industries. If this happens, the world economy will flourish. But, if China decides to abandon its current reform and take retaliatory measures, the trade market of the world will suffer great loss.

Impact on India

There are no direct positive or negative impacts on India due to this. But, the global market will be affected, which in turn will have major impacts on the emerging market (EM/ flows. (Neeraj Dewan, Quantum Securities).

If China decides to step down from the current reform, India will benefit. Even though there will be turmoil in the market for the first few months, the market will regain its steady pace. China is becoming more and more expensive as a manufacturing site. The trade policies of India, like the GST, ‘Make in India’ program, etc., facilitates these establishments of international companies and industries. Thus, if not in the short term, but in the long term, India will benefit from this cold war. Also, if China’s economy slows down, India’s economy and its chances if emerging as a chief manufacturing location will grow. But, to avail the most of this opportunity, India must play its cards well. Policies and laws should be framed in such a way that the situation benefits in favor of India’s cause.