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Editorial: Don’t Ignore China-US Trade Tussle

Port Wings, 28 March 2018:

China is not only the India’s powerful neighbour but also a biggest trade partner. And, any economic turbulence in the country due to the US’s latest “Trade War” using tariff regime, could directly or indirectly affect the economy of India, as our country is one of the top exporters of various goods to China.

Eventhough the economic pundits in India see no logical reasons for any cascading effect due to US’s trade war, time is the best alarm clock for every economy, be it small or a well established one in developed countries, and sidestepping the emanating bubble could be more dangerous than taking measures to minimize the impact on Indian economy.

It is a known fact that any economic turbulence in China will be seriously affecting the prospects of Indian exporters in the longer run.

After the last week’s US decision, WTO members expressed concern over the imposition of higher tariffs on steel and aluminium imports and the impact they may have on the global trading system at a meeting of the Council on Trade in Goods in WTO.

When the bloodbath in Chinese equities was unfolding dramatically few months ago, there was a direct and instant reaction in Indian stock exchange. Leading stocks were tumbling and situation has been so panicky for the big time investors, who started feeling the turbulence sitting thousands of miles away in Mumbai.

While it has been seen as a precursor for the markets both in China and India, the feeling among the top echelons was that the time has come to insulate the domestic market from external innuendos.

Even though the analysts concluded that it may be a sobering reminder of just how closely India’s fortunes are linked to the rest of the world, the message is clear that any fumbling in Chinese markets could be seriously felt among the Indian exporting community.

However, the silverlining is that the Indian equity markets may benefit in the near-term as global investors looking for high growth economies with domestic consumption-led growth re-allocate funds from China to India.

Experts back in India categorically deny that a spill-over of the stock market crisis into the broader economy is very much unlikely given the strong domestic market in our country. However, stock analysts across the globe feel that China turbulence is the bigger worry for global market and markets like India can breathe easy for now.

Though the Indian financial markets may remain under pressure and the rupee is likely to be volatile given the latest fissure between China and United States, it is time for the Government of India to put all corrective measures in place.

Image courtesy: Longroom

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