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Tricks of trade | There is life beyond the US-China fight. And India must seize it

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India, it seems, is trying to pick up the tricks of global trade fast. Amid the ongoing and escalating tariff tension between the US and China, India, like a true trade opportunist, is weighing moves to increase its market share in both the countries. To this effect, a detailed study has been carried out to spot items whose exports can be jacked up.

The commerce ministry, in a recent study, has identified over 350 such products, of which 203 items are those whose exports could be increased to the US, replacing Chinese goods, and 151 items where exports to China could bestepped up.

India’s eagerness to cash in on the ongoing trade spat between the two super powers is understandable as the country, in recent years, has been struggling to raise its exports of goods and services. While 2018-19 had been tad better for merchandise exports at $331 billion, the country is way behind its target of achieving $900 billion in goods and services exports by 2020 (for 2018-19, exports of goods and services stood at around $535 billion).

According to the commerce ministry analysis, for 203 items India has the potential to replace Chinese exports to the US as it already has market access for these items and is a competitor of China. Since the US has increased tariffs for China on these items, India could find it easy to increase exports. These items include electrical machinery, rubber and graphite electrodes. The US imports of these items from China are worth around $30.6 billion, while India’s exports to the US are only worth $2.4 billion. On the other hand, India’s total exports of these items to the world are worth $22.2 billion, implying that there is a scope to ratchet up such exports to the US.

The study further reveals that of the 774 American items on which China has imposed extra duties, India can ship out more and replace the US, especially in 151 items. In these 774 items, China’s imports from the US stand at an annual $20.4 billion. However, while India exports these items worth $32.8 billion to the world, it ships out only $2.9 billion to China. This means there is a huge scope for India to replace the US.

While the number crunching may look enticing, it has to be kept in mind that the benefits to India are contingent on greater competitiveness as well as its ability to scale up production to meet higher demand. In this context, the opinion of an exporter of organic and inorganic chemicals, perhaps, is worth noting. According to the exporter, there is potential to export more xylene and  benzene to China. But these are bulk chemicals in liquid form. So logistical support is crucial to increase exports. High cost of freight and electricity too is an issue that needs to be resolved.

The relevance of the exporter’s view is that while the opportunity to make the best of an adverse situation may exist, challenges are also big. It is extremely difficult to change the composition of an export basket overnight. Moreover, given the huge trade deficit that India has with China ($53.5 billion in 2018-19), it is perhaps pertinent to have an estimate of how much this  trade imbalance can be corrected if we manage to ship more of the items that the US exports to China.

There is also a need to look into the larger global picture. The World Trade Organisation (WTO) has cut global trade forecast to 2.6 per cent in 2019 from 3 per cent in 2018. “World trade will continue to face strong headwinds in 2019 and 2020 after growing more slowly than expected in 2018 due to rising trade tensions and increased economic uncertainty,” the WTO has said. The warning should not be missed and, instead of a myopic view, India needs to craft a holistic strategy to increase it share in world trade, which currently stands below 2 per cent against China’s share of over 12 per cent.

According to The Economist, “the lesson of the past decade is that stable trade relations between countries require them to have much in common — including a shared sense of how commerce should work and a commitment to enforcing rules. The world now features two super powers with opposing economic visions, growing geopolitical rivalry and deep mutual suspicion. Regardless of whether today’s trade war is settled, that is not about to change”.

If such internecine tension between the super powers does persist, India will do well to look far beyond the tariff tussle between Washington and Beijing to consolidate its position in world trade.