Dec 2018: Can India’s Trade share grow on US-China Trade tension?

US and China are now at a historical tipping point, and national security priorities are driving policies that will lead to further decoupling of American and Chinese interests. This, in turn, will lead to further fragmentation of global value chains.

India will focus on advancing its exports to the U.S. and other global markets including Latin America as Chinese shipments become unattractive amid a trade war between the world’s biggest economies.

India is focusing on a handful of items including automotive parts, chemicals, electrical equipment, among others after the U.S. and China slapped reciprocal duties on each other’s goods. India’s share in global merchandise exports is at 1.7 percent compared to China’s 12.8 percent.

India’s long-term strategy is to focus on enhancing manufacturing capabilities with the focus not only on the United States but also keeping in view the demands in other markets, as well. Latin America and Caribbean (Americas) is a geographical area from which India can benefit enormously. It represents a market of over 600 million people for Indian products & services and is key in India’s journey to become a true world leader and consolidate its global influence.

As per the figures available with the US Department of Commerce’s Bureau of Census, in the first six months of this year, America’s export to India in merchandise increased by 28.42% from USD 12.1 billion to USD 15.5 billion. During the same period, India’s export to the US in goods increased by 13.11% from USD 23.6 billion in 2017 to USD 26.8 billion.

The total bilateral trade between India-US in the first six months of the year increased by 18.4% from USD 35.7 billion in 2017 to USD 42.36 billion in 2018.

In July 2018, US upgraded India’s status as a trading partner on par with its NATO allies. The upgrade to the status of a NATO ally comes almost two years after India was designated a Major Defence Partner of the US.

With President Donald Trump expected to go ahead with another round of tariffs on $200 billion of imports from China in January, India looks to gain from opportunities from the dispute. In addition, according to PWC’s Global Strategy group, 80% of the corporate research and development (R&D) money spent in China in 2017 came from non-Chinese multinationals. Unraveling these ecosystems will require dismantling complex, interconnected relationships, with potentially heavy economic and financial consequences across global value chains.

The consequence, Southeast and South Asia, the regions that have mastered export competitiveness, is already seeing a boom in foreign direct investment including R&D as the trade war prompts multi-national companies to shift production to the region.

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