Trade war could be opportunity for India to cut trade deficit with China

By Wang Jiamei Source:Global Times Published: 2019/6/12 21:03:41

Illustration: Luo Xuan/GT

The 19th summit of the Shanghai Cooperation Organisation (SCO) is scheduled to be held in Bishkek, capital of Kyrgyzstan, Thursday and Friday. Against the backdrop of the trade war with the US, it is of great importance for China to enhance cooperation within the SCO framework and to strengthen ties with the member states, especially in the economy and trade.

As a full member of the SCO, India is also expected to join hands with China at the summit to enhance economic cooperation and oppose trade protectionism.

At present, both China and India are under pressure from trade frictions with the US. The Trump administration initiated a trade war against China that aims to not only curb Chinese exports, but also constrain high-tech development in China. On the Indian side, the US officially terminated its preferential trade treatment for India starting from June 5. According to media reports, India was the biggest beneficiary of the US Generalized System of Preferences program, which allowed preferential duty-free imports of up to $5.6 billion worth of goods from the South Asian country. The ending of preferential trade treatment is expected to strike a new blow to the Indian economy, which is currently facing challenges from slowing growth and high unemployment. According to the latest government data, India's GDP growth rate slowed to a five-year low of 5.8 percent in the January-March quarter, while its unemployment rate reached 6.1 percent in the 2017-18 fiscal year, the highest level in 45 years.

Given their respective trade pressures, China and India could seek mutual support from each other to pull through the difficulties. As the largest developing countries in the world, both China and India are beneficiaries of multilateral free trade in the current world economic order, which means that they share common interests in opposing trade protectionism. Of course, there are also conflicts between the two countries that cannot be properly addressed within the short term. 

One of the key problems is India's trade deficit with China, but in the context of the trade war, this problem could be relieved to a certain extent. First of all, the consequent trade transfers for China's imports from the US could result in the increase in Indian exports to China, especially in agricultural products, which seems quite promising if China and India want to enhance their trade cooperation. 

Moreover, the current trade pressure will not slow down the pace of China's opening-up, but rather speed up the process. And India will also be one of its beneficiaries. In fact, since the informal meeting between the two countries' top leaders in Wuhan in Central China's Hubei Province last year, China has already been opening its market wider to India by starting imports of some agricultural and pharmaceutical products from its South Asian neighbor.

Furthermore, trade data has already seen the impact of the trade transfer and China's accelerated opening-up. India's exports to China jumped 31 percent year-on-year in the 2017-18 financial year, thus cutting its bilateral trade deficit with China by the most in more than a decade, according to a Bloomberg report, citing anonymous Indian officials.

In addition, China and India can also encourage strengthened business cooperation between their companies so as to further their participation in the global value chain and thus explore more trade opportunities in the world market. Just from the perspective of industrial structure, there is far more potential for trade cooperation between the two countries. According to statistics from the World Bank for 2017, in China, the agricultural sector accounted for 8 percent of its GDP, with the industry and services sectors taking 40 percent and 52 percent, respectively. In India, the agriculture, industry and services sectors accounted for 16 percent, 26 percent, and 58 percent of GDP. A simple comparison of their industrial structures shows that China's industrialization development is faster, while India has certain advantages in its services sector. Such industrial complementarities could provide more room for bilateral economic and trade cooperation.

While China is looking forward to deepening cooperation with India, it should still be noted that a pragmatic and positive attitude is the basis for all cooperation and conflict resolution. Both sides need to seek all possible common ground, not differences, so as to make progress step by step. 

The author is a reporter with the Global Times.


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