China Hit Back to US Tariff: Will This Trade War Affect Indian Economy?

A tit- for- tat trade war has been started between world’s two largest trading economies. By imposing threatening tariff, China is ready to levy additional 25% tariff on import of 106 US products.  China took very short period of time of 11 hours to respond US with its own measures.

China – US Trade war

Trade war which was started by US President Trump’s new tariff imposition on Chinese products is now on full swing. China slaps tariff on a range of US products worth $50 billion. The product range includes airplanes and cars, aircrafts, whiskey, chemicals, soybean etc.

China was waiting for the US to move first regarding tariff imposition, and then only it went ahead.

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

— Donald J. Trump (@realDonaldTrump) April 4, 2018

Impact of trade war on Stock market

Though, the market was not expecting this type of tough step by China. Investors didn’t expect additional tariff imposition on sensitive items like aircrafts and soybeans. Impact of the news was immediately seen on markets, including soybean market.

The latest step towards trade war by china impacted many world markets. All major markets in Europe, opened lower.  Main exchange of South Korea was down more than 1%. Hang Sang (HSI) of china dropped 2.2%.

Impact of trade war on Chinese and US economies

The trade war will impact both China and US.  Both economies will be badly affected. China is the world’s biggest soybeans importer and biggest importer of US soybeans. Last year China imported soybean of worth $14 billion from US.

On the other hand, US intention is to choke china’s ‘made in china 2025’ plan, which was introduced in year 2015. This plan includes 10 main sectors which will help china to become an advanced manufacturing power such as aerospace, information technology and robotics.

Will this trade war affect Indian economy?

No doubt, Indian economy will also be affected by US-China trade war.

• This trade war means lower demand and higher price in these two main economies, and this will impact export of India. If it happens, it will impact GDP growth rate of India in year 2019.
• Trade war will create situation of “lose-lose”, in which almost all countries of the world will be pushed and ultimately recession like situation may arise.
• It is likely that US will come up with certain trade restrictions for India also, as it has done with China. The reason is very clear, Trump don’t want cheap labor force and cheaper imports to capture US economy.

But, all depends on President Trump, if he moves ahead with his announcements then not only China and US will be impacted; almost all economies of the world will have to suffer.