Since the beginning of the year, the US-China trade dispute has intensified, beginning with countervailing duties on stainless steel flanges from China (and India) to safeguard duties on washing machine and solar cells aimed at China. The US move to apply tariffs on steel and aluminium imports to protect its domestic industry resulted in China issuing an intent to impose duties on agricultural goods worth $3 billion imported from the US.

Following the publication of the US Trade Representative (USTR) report of its investigation of China, the Trump administration decided to impose 25% tariff on over 1,300 products coming from China, as per the list announced on April 3. These items account for $46 billion of US imports from China.

The next day, China announced a list of 106 US products that would be subject to the same tariff rate, impacting almost $50 billion worth of Chinese imports from the US.  

If, after due process, all these tariffs are instituted, they would price higher about 15% of bilateral goods trade.

April witnessed further trade measures from the two countries directed at each other. The US banned its companies from selling components to Chinese telecom equipment manufacturer ZTE for seven years, citing violations of sanctions against Iran. Anti-dumping deposits were imposed on US exports of sorghum to China, its major market by far for the product. The US then threatened tariffs on another $100 billion imports from China.

Such steps have significant implications for global trade. The US is the world’s largest importer of goods at $2.2 trillion and the second largest exporter with $1.4 trillion, while China ranks top in exports with $2.1 trillion and second in imports at $1.4 trillion as of 2016. Merchandise worth $637 billion was exchanged between the two countries in 2017, with two-way flows including services exceeding $711 billion. Volatility resulting from uncertainty about the implementation of threatened tariff measures has hit markets.

USTR report

The USTR report, on which the recent round of tariff hikes is based, was initiated in August 2017 under Section 301 of the US Trade Act following long-standing complaints from US companies about being pressurised to share technology with China in return for market access. The findings imply that the Chinese government deploys unfair, opaque and unwritten ways to compel American enterprises to open up their proprietary technologies.

The report also alleges that China supports and incentivises acquisitions of and investments in US technology firms to gain intellectual property.

One key claim of the report is that the Chinese government indulges in ‘unauthorised intrusions’ into US commercial computer networks and cyber theft of intellectual property belonging to US enterprises. The USTR claims are refuted by China.

The US-China ‘trade war’ is thus a tussle for technology leadership and strategic dominance. Chinese investments in US technology firms, too, have been on the US radar.  The rapid progress made by China in so-called ‘Industry 4.0’ technologies is causing concern in the US. Given this technology contest, it is likely that trade confrontation of the two countries may continue.

India’s trade with the US, China

For India, the US is its largest export market and second largest source of imports with total trade in goods at $66 billion (April-February 2017-18), as per official data.

China remains by far India’s largest import partner with close to $70 billion of goods purchased from the country in the first 11 months of the fiscal year. However, Indian exports to China were less than $12 billion.

If the tariff barriers imposed by the US and China play out as announced, global trade could contract, impacting India’s recent upturn in exports.

A possibility could be that the US and China would consider third producers, including India, for their import necessities. Reportedly, India has offered to sell soybean and sugar to China during the Strategic Economic Dialogue held in Beijing in April.

India’s exports of tariff-impacted products

Machinery, mechanical appliances and electrical equipment account for $34.2 billion of the 1,300 affected US imports from China. Looking at US import items from China valued at over $500 million, it is found that India’s exports to the US of these items (at four-digit level) in 2016 were very limited (see table below).

Only four of the 15 items aggregated more than $100,000 and none came in over $300,000 value.

Table 1: India’s exports to US of imports from China for which tariffs were raised

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