Pramode Mallik

Both Indian Prime Minister Narendra Modi and Chinese President Xi Jinping congratulated Donald Trump after he was elected 47th US President. However, political analysts doubt if the bonhomie will continue after Trump takes the oath of the most coveted office in the country on January 21, 2025.

Donald Trump To Impose Fresh Tariff On Chinese Goods?

Donald Trump will most likely impose fresh and increased tariffs that may go up to 60% on Chinese imports. The US-China trade deficit soared to $95.70 billion, with the bilateral trade reaching $120 billion in 2023-24. It may look ironic that days before the Republican candidate got elected, Chinese exports to the US increased by 8.1%, while imports fell by 2.3%.

Chinese Currency Weakens

It is also interesting to note that days before Donald Trump was elected US President for the second time after a four-year gap, the Chinese central bank officially brought down the exchange rate of its currency, the ‘renminbi,’ to the lowest level in the year. The People’s Bank of China sent a strong signal that it wanted to continue its export domination.

Will Donald Trump Spare India?

Donald Trump will not spare Indian exports either. Analysts believe he is most likely to slap Indian imports with a minimum of 10% tariff across the board and it may go further up on certain items. The Republican candidate called India a “tariff king” and announced during his election campaign that the country is an “import tariff abuser”.

Political analysts believe the trade war between the US and China will harm both countries financially. Though the US production may go up and its import may decline in the short term and medium term, it may prove counter-productive in the long term.

Increased tariffs on imports may push the input cost up, particularly those that depend on imported raw materials or equipment, it may increase inflation, it may become difficult to sell the US products overseas and the US exports may decline, contrary to earlier planning.

Will China Make India Its Manufacturing Hub?

Analysts believe the US-China tariff war may benefit India. As China is determined to sell its surplus products worldwide, created due to incredible growth rates for almost two decades, it would try to find new production bases from where it could sell its wares across the world.

Beijing wants to shift its production bases also because it wants to come out of the traditional and polluting industries and businesses and focus on futuristic businesses. Instead of running steel mills on coal and making cars driven on petrol and diesel, China should focus on manufacturing electrical vehicles, robots, and businesses based on AI, search engines, and the internet.

Thaw In India-China Ties

After the tensions on the India-China border eased and the two sides agreed to maintain the status quo ante in May 2020, the People’s Liberation Army and the Indian Army pulled back their troops to the point where they were stationed before the crisis was triggered.

Political observers believe Beijing may choose India as its production base at least for those products which are exported to this country if New Delhi offers the required olive branch, forgetting the recent bitterness over the border patrolling. India will also have to withdraw or offer exceptions in investment in certain sectors and provide a level playing field.

Will India Offer Olive Branch?

Considering the skilled manpower, technology, infrastructure, law-based business ecosystem, political stability, and burgeoning middle class with increased purchasing power, Beijing may invest in India and its state-controlled companies may establish production facilities in the country. The products thus manufactured may be exported to the world, particularly Africa and Europe.

India-China Tango

India-manufactured wares produced by Chinese companies would be treated as Indian exports and the US will not be able to slap these products with additional tariffs equal to the Chinese exports.

If the two Asian giants sink their differences and keep aside the political rivalry, it will be a win-win situation for them. But it needs two to make a tango. Both India and China will have to walk extra miles.

Will India Use Opportunity?

When Deng Xiaoping was the General Secretary of the Communist Party of China and then Indian Prime Minister Rajiv Gandhi met him, the two sides decided to put the border dispute on the back burner and focus on strengthening business ties.

China used this opportunity to avoid controversy and focus on economic development. Now is the time India learned a lesson from its political adversary to focus on economic development, keeping political issues aside.