While the US and China spar, India should seize the opportunities in the global supply chain shifts

The Indian economy has the world’s most remarkable growth rate and is projected to grow at 7.1-7.6 per cent in 2022. The rising fuel prices caused by the Russian-Ukraine war have created instability worldwide. The South Asian nations like Sri Lanka and Pakistan are already experiencing the consequences, and even Bangladesh is now requesting a bailout loan from the IMF.

A recent report by the International Monetary Fund (IMF) projected India has a zero per cent chance of getting into recession. Whereas a country like the U.S. has a 40 per cent chance, and China has a 20 per cent chance of getting into recession. So, it’s important to note how the US-China rivalry could affect India’s economy in the long term.

The rivalry started more recently on Donald Trump’s last day in office. The US raised the issue of China’s crime against humanity and genocide in the Xinjiang region against the Uyghurs and banned all imports from the area.

Second, the Joe Biden administration continued some of Trump administration policies, with more focus on action. It maintained the tariffs on Chinese imports and sanctioned Chinese officials over policies in Hong Kong and Xinjiang. The US banned dozens of Chinese companies and stressed competing with China.

Third, the collaboration on climate change and agreed to boost cooperation and work together on increasing renewable energy as both the countries are the world’s top emitters of greenhouse gases. But, the collaboration on climate change got more tension.

Fourth, the US imposed a diplomatic boycott on the Beijing Winter Olympics, citing the Chinese government’s human rights abuses in Xinjiang and elsewhere.

Fifth, amid the Russian-Ukraine war, Biden pressed Xi Jinping on Russia’s war in Ukraine. China refused to condemn Russian President Vladimir Putin for the war and the resulting humanitarian crisis.

Sixth, US Secretary of State Antony Blinken emphasised the importance of strengthening the US competitiveness toward China and called China the most serious long-term challenge to the international order.

Seventh, the visit of Congress member Nancy Pelosi to Taiwan. China warned that US support for Taiwan is like playing with fire. The current situation of small-scale war between both countries arose. Biden has clearly stated that he would come in support of Taiwan if China attacks it. The US deployed their nuclear warships, men in the Taiwan strait, for regular patrolling as China saw it as their internal matter, even supported by Russia. It will be essential to see further development in China’s invasion of Taiwan.

India is one of the developing countries, so bad trade and tariff policies hurt India. India is seeking to give a boost to the manufacturing sector. This could be an excellent chance for India, as a report from the United Nations said that a few countries would benefit from the trade tension, and India is one of them.

The impact on India is both an opportunity and a threat. Everything has two sides, good and evil, and the trade problems between the two countries can be a good thing for India. It will be an excellent chance for those who sell goods abroad. Since the US taxes Chinese goods heavily, Indian traders can fill the gap and take advantage of the opportunity.

Trade tension between the US and China has some adverse effects on India. Because of the trade tension between the US and China, other countries like India are also affected because they have to deal with the constant changes and can run out of finished goods or raw materials if demand increases. Also, taxes and fees became more expensive in the country.

At 80 rupees per dollar in July 2022, the value of rupees has already gone down. This happened simultaneously with Biden’s threat of a new round of export tariffs, which automatically hurt India’s trade deficit. Investors are being more careful because of the global trade war.

As trade tensions between the US and China continue, the world economy and India’s economy become less stable. Indian traders can fill the gap, and companies that make iPhones can establish factories in India, which is good for the country’s growth. As the value of a country’s currency falls, trade tensions are likely to rise. The CEOs of Indian companies need to come up with a business-friendly strategy and other plans to help the economy. If the US and China want to avoid a trade war, they must cut taxes as the economic growth of each country depends on trade, which is the backbone of every country.

(The author is Director of research in the Indo-Pacific Consortium at Raisina House, New Delhi)