Implications Of US-China Trade War

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By admin May 21, 2019 17:11

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News: Google has suspended some of the business with Huawei.

Current issue

  • This is the latest development in the long row of US-China trade war that has been started after Donald Trump took the office of the US president.
  • This particular issue regarding Huawei started with the recent controversy over the arrest in Canada of Meng Wanzhou, CFO of China-owned telecommunications giant Huawei, due to accusations by US authorities of helping Huawei cover up violations of US sanctions on Iran.
  • In this latest development, Google has suspended business with Huawei that “requires the transfer of hardware, software and technical services”. In effect, Google has cancelled Huawei’s Android license.
  • Google took this step after the Huawei was added to the U.S.s’ Trade blacklist. American companies are barred from doing business with the blacklisted companies without “explicit approval” from the government.
  • As per the latest announcement by Google, Google Play and the security protections from Google Play Protect will continue to function on existing Huawei devices.

How would that impact Huawei’s smartphone market?

  • Huawei can still use Android from the Android Open Source Project that will keep its phones functional but without a commercial license, proprietary services of android will not be accessible in the future.
  • Thus, Presently, Huawei’s phones will not be impacted much and continue to work. But there are concerns that whether existing Huawei phones will ever get an Android update again. It is notable that Android has monthly security updates and yearly operating system updates.
  • On the other hand, it’s services in China that makes up to half of its total phone sales, will not be impacted because Google and its services are banned in China.
  • Indian consumers will not be impacted much as Huawei and Honor together have around 4.5% of the market share in India

What could be the long term risks for consumers?

  • As the Google security updates and google store won’t be accessible to the users in this scenario, there will be an increase in Android malware.
  • Malware increase will be resulted from either sideload applications from malicious websites in order to access the Google apps again, or any Google Play alternative by Huawei might not have the same checks as Google.

US-China trade war issue

Timeline of the issue

  • This issue started with Donald Trump coming to power as US president. During his presidential campaign, he strongly favoured applying high tariff rates on Chinese imports.
  • All these proposal starting taking shape in 2018, when Trump administration imposed 25% Tariff on steel imports all over the world.
  • Meetings and negotiations have been taking place between officials of both countries since last year. But the matter escalated when the Trump administration issued a formal notice of raising the Tariff rate on $200 billion worth Chinese import from the previous 10% to 25%.
  • China retaliated by increasing the Tariff by the same rate on the US exports to China.

US-China trade war issue

Steps were taken by the U.S. in this trade war

  • S. has increased Tariff from 10% to 25% over $200 billion worth of Chinese goods and this is expected to be followed up by a tariff hike on the remaining Chinese imports of about $300 billion.
  • In addition, the White House has curtailed investment from Chinese entities and visas to Chinese nationals (such as researchers).
  • The latest development in this trade war is blacklisting of China-owned telecommunications giant Huawei.

China’s retaliation

  • Against U.S. tariff hike, China also announced a hike in tariff from 10% to 20% or 25% on American exports worth $60 billion that include beer and wine, swimsuits, shirts, and liquefied natural gas.

What were the causes behind all this?

  • The U.S. trade deficit with China has soared, rising from around $100 billion in 2000 to $419 billion in 2018.
  • S. administration has made allegations of espionage over Chinese companies(specifically Huawei) and personnel.
  • The Trump administration claims the US relies too much on the non-friendly countries for its metals, and that it couldn’t make enough weapons or vehicles using its own industry if a war broke out.
  • As per the administration, tariffs would make US-made products cheaper than imported ones, and encourage consumers to buy America.
  • Last but not the least, US administration has recently been on tariff hike apt with all major trading countries like EU, Canada, and India. U.S. has previously announced to remove India from the list of beneficiaries under Generalized System of Preferences (GSP).

How this trade war would impact India?

India-China trade

  • Increase in Chinese imports: With the tariff hike in the U.S., Chinese companies would look for the markets where they can dump their products. It makes India, with 1.3 billion people, the most suitable candidate for its imports. Thus it may result in an increase in Chinese imports.
  • India’s exports to China: With the increased tariff on U.S. products, Chinese companies may turn towards India as an alternative for their demand of products like alcoholic beverages, soybean, maize, and ready-made garments.
  • Trade deficit: As India’s exports are not expected to increase in the proportion of imports from China, it may further widen the trade deficit.
  • RBi regulations: Chinese investments will also be constrained by RBI regulations. These regulations do not allow persons from select countries, including China, to acquire or transfer immovable property in India without prior permission of the RBI, other than lease, not exceeding five years.

Global trades

  • IMF has predicted that a full-blown trade war would cause the global economy to slow down by more than 0.8% in 2020. It may result in the reduction of India’s exports world over. This will negatively affect income and employment generation in export-driven sectors and downstream industries.
  • Having in mind the import dependency of India for its energy requirements, it will not be able to cut its import bills (Especially after US-Iran controversy), whereas exports might slow down. It will result in a higher overall trade deficit of India.
  • Higher trade deficit may result in a further fall in the Indian rupee value.

Would India be able to gain in the U.S.?

Regarding exports

  • It seems unlikely as the nature of exports of both India China to the US is different.
  • India’s exports to the US are primarily raw material, semi-finished goods, pharmaceuticals and minerals, whereas Chinese exports to the US mainly consist of finished goods, electronics, plastics, toys, etc.
  • Moreover, the competitiveness of India’s products is not on par with the Chinese ones. At 58, India still ranks below China (28) in the World Economic Forum’s Global Competitiveness Rankings for 2018.

Regarding the relocation of companies

  • India may also not be able to take much benefit from the relocation of manufacturing firms from China to other countries.
  • ASEAN economies, including Malaysia (15), Thailand (27), Vietnam (69) and Indonesia (73), rank higher than India (77) on the World Bank’s Ease of Doing Business index.
  • Other countries, such as Bangladesh, Myanmar, Laos, and Cambodia, though lower ranked on the index, provide significant incentives and low-cost advantage to foreign investment.

India must proactively address these concerns. Reaping every opportunity that presents itself has become more crucial now, given that the global environment is in for even more challenging times.

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admin
By admin May 21, 2019 17:11