Why is India not capitalising on the US-China trade spat?

In the article “A China Trade Deal will be a Triumph for Donald Trump” by this writer (Business Standard, March 16, 2019), it was reported how China’ decision to hike its imports from the United States from a meagre $111.16 billion to $1.3 trillion would be a great boost to the US economy. China’s proposal to buy $30 billion worth of agricultural products from the US, including soya bean, corn and wheat, will undoubtedly provide great relief to American farmers who have been hit badly by the retaliatory taxes imposed by China on soya bean in the recent past.

In this connection, one should not miss the point that China is the world’s largest holder of US treasury bonds, and that it reduced its treasury holdings from $1.184 trillion in December 2017 to $1.123 trillion in December 2018. China is expected to dump US treasury holdings to buy goods and services worth $1.3 trillion from the US. Though it was widely expected and even announced by US President Donald Trump that the deal would get the stamp of approval by the end of March, this did not happen and there was a lull in the negotiations.

From the tweets of Mr Trump at the conclusion of the G20 meet in Tokyo last week, it was evident that the US-China trade deal would go through shortly. It was apparent that Mr Trump’s meeting with President Xi Jinping of China went “far better than expected”, when the US president said talks were back and new tariffs would be put on hold until the talks were over. In fact, Mr Trump was threatening to impose fresh tariffs on smart phones, toys, footwear and fish.  
 

Mr Trump is confident that Beijing will agree to a deal as the tariffs imposed by him are driving business out from China. In an interview to CNBC last month Mr Trump had said: “Companies are getting decimated in China and have started moving out of China and some are returning to the United States”.

Mr Trump’s policy of high tariffs has made several consumer items manufactured in China less attractive to US buyers, such as baseball caps, luggage, handbags and bikes, washing machines, dishwashers and their spares. Cap America, a Missouri-based firm that imports baseball caps from China and embroiders them for use in the US, has started looking for a supplier from Bangladesh, though this supplier may not be able to supply more than 20 per cent of Cap America’s requirements.

An interesting aspect of this ongoing tussle between China and the United States over almost one year has been brought out in an analysis on July 3 by Katie Lobosco of CNN Business that shows there are four clear winners in this trade war — Vietnam, Taiwan, Bangladesh, and South Korea. As the trade talks between China and the US have remained inconclusive, US imports from China have registered a 12 per cent decline during the first five months of this year, compared with the corresponding period of last year.

At the same time, imports by the US from Vietnam went up by 36 per cent, while imports from Taiwan rose by 23 per cent, those from Bangladesh were up by 14 per cent and those from South Korea increased by 12 per cent. While Taiwan and South Korea are more focused on high-tech items such as semi-conductors, Bangla-desh and Vietnam (which offer competitive wages) have focused on the export of apparel and footwear.

It is painful to see that India, one of the large economies in Asia, figures nowhere on this list. This omission is quite glaring. While much smaller economies such as Bangladesh and Vietnam have been smart enough to penetrate the US market, the Federation of Indian Exporters Organisations, the Federation of Indian Chambers of Commerce and Industry, and Confederation of Indian Industry all owe an explanation for this lapse on the part of Indian exporters. Prime Minister Narendra Modi should take a serious view of this phenomenon and have the matter studied by the ministry of commerce. Indian exporters have missed a great opportunity to enter the US market.     

The writer, a retired IAS officer, was Member, State Planning Commission and Additional Chief Secretary, Government of Tamil Nadu