The ongoing trade war between the US and China which started after the Donald Trump administration came at the helm of affairs in the US and intensified last year shows no signs of relenting. According to CNN journalist, Fareed Zakaria, the decision taken by Trump administration to ban Huawei and cut off access to western software and chip technologies could well be China’s Sputnik moment and the country would have to develop its own independent technology infrastructure and capabilities. This could also be the Sputnik moment for the US as it will have to wean away from Chinese goods and look to outcompete China.
The trade war could trigger a new form of the cold war, a bipolar tech world with two sides of walled-off technology groupings. This trade war could actually turn out to be a great opportunity for India. The American and even European and Japanese companies will have to look for new sources and avenues in the backdrop of the trade war. They might also have to explore new markets given that these companies would no longer be welcomed in China. On the other hand, China will also have to look for options other than the US. The US has launched a massive trade war and China can no longer risk relying heavily on the US to sustain the former’s export-based economy.
Fortunately for India, this trade war has coincided with its rise as the fastest growing economy in the world. With its size and capabilities, the Indian economy is a prolific market for both the American and European companies on the hand and the Chinese companies on the other. In such a situation, India stands to gain big from the ongoing trade war.
With certain policy decisions and changes in place, the Indian economy can effectively fill in the space needed by both the Chinese and the American companies. India, the second largest Asian economy with a huge pool of cheap labour could benefit from the US-China trade cum currency war because it has the capacity to replace China as the main exporter of goods to the United States. But, this will depend on how PM Modi negotiates the trade relations with Trump and PM Modi has been not very successful on this front. However, this should not be much of an issue.
Ultimately, the US will have to look for an alternative because the American companies will have to look for new suppliers and new markets. And the obvious option has to be India with its encouraging economic growth rate and the size of its economy most closely resembling that of China. The other thing which India needs to work really hard on is labour market reforms, effective exit policy, delays at customs and other red tapes which have been some of the biggest hurdles that have prevented India in profiting from its low wage and surplus labour advantage. The labour laws in the country are one of the worst in the world matching those of socialist countries like Cuba. If India could do more on ‘ease of doing business’ it will be hugely beneficial in replacing China as an export powerhouse.
This trade war presents India with an opportunity of making it big. Till now, experts used to feel that India is well past the window of opportunity of exporting its way to prosperity. However, this trade war presents India with an unexpected opportunity to fuel inspiring export-led growth and replicate the kind of success of countries like Japan and China. It remains to be seen if India can make full use of this unexpected opportunity to emerge as one of the biggest markets in the world.
