Amid US-China trade war, India needs to trudge smartly
There will be opportunities as well as threats for India as superpowers America and China joust.
Make no mistake, US President Donald Trump’s trade war with China is about a whole lot more than trade. It is an attempt to contain China’s rise and retain US pre-eminence in not just Asia and the Pacific but in the world. China has replaced the erstwhile Soviet Union as the rival superpower to the US.
The American attempt to strip Iran of the capability to stay an autonomous regional power has more ambiguous motivation, in which strains of the ancient animosity that propelled the Crusades mingle with considerations of reinforcing the West’s current dominance in the region, by further increasing the power differential between its regional proxy, Israel, and its challengers. Iran, home to the Levant’s second largest population of Jews, is too evolved and complex a civilisation to be subjugated by bullying.
The US raised tariffs from 10% to 25% on imports worth $200 billion from China in the midst of trade talks, accusing China of going back on agreed provisions. Then it banned US companies from trade with Huawei and its affiliates. This has stalled talks. China’s internal power equations will not allow a public perception of the government taking American bullying lying down. China is preparing a fiscal package to counter the negative impact on its economy of curtailed exports to the US, amidst calls for a people’s war against US aggression.
Chinese countermeasures, such as diverting imports of soya and whiskey away from the US, will hurt small but influential segments of the American society. More expensive consumer goods, which would result from the US proceeding with its threat to raise tariffs on imports from China across the board, would erode the living standards of less affluent Americans, raise the cost of phones, laptops, gaming consoles and other tech stuff, irritating the youth.
At the same time, American multinationals will be hit. If the trade war with China persists, they will have to rebuild their global supply chains, large parts of which are located in China. Their sales to Chinese companies and consumers would hurt. While global capital would cheer an end to the Chinese practice of insisting on technology transfer as a precondition for access to the vast Chinese market, they have little sympathy for the Trumpian vision of shifting manufacturing back to the US.
Global production takes placed in enmeshed networks, in which development of intellectual property, say, for a new generation of chips, could be taking place in the US and India, while the chip’s fabrication could take place in Taiwan or Singapore and its integration into a gadget in China, along with other parts that are built in the elaborate supply chain nicknamed Factory Asia, in which bits and parts shuffle around East and Southeast Asia, adding value along the way, before ending up in China for final assembly.
This has raised living standards in Asia and fattened the profits of western multinationals. But it has also taken jobs away from the US and Europe. Domestic politics has failed to address the scarcity of blue-collar jobs and their diminished ability to let low-skilled workers join the ranks of the middle class. The resultant disquiet has been exploited by populists like Trump to come to power and be seen to be doing something to bring the glory days of flourishing manufacturing back to their economies, where the high-skilled and the entrepreneurial see a huge rise in their incomes, widening income inequalities and fuelling popular anger that facilitates yet more populist politics, be it Brexit or antiimmigrant anger in parts of Europe.
China's R&D ecosystem has evolved to a level where it no longer needs to steal technology -China even imports Wedgwood pottery from England, whose roots lie in ceramics technology stolen from China centuries ago. China leads the world in quantum communications, is heel-to-toe with the US in artificial intelligence and racing ahead in digital technologies, unhindered by privacy concerns.
The US's denial of technology will accelerate, not stifle, this process. Denial of Qualcomm chips brought ZTE to its knees. This will spur the Chinese to build their own Qualcomm. China's rise as an economic and military power is unstoppable. Western capital gains from this process more than western labour loses out. Trump's campaign to contain China will fail even if turbulence in the capital markets does not halt the project before long.
However, the pre-eminent condition for China's rise to stay peaceful is the rise of India as a countervailing power. The Indo-US nuclear deal signalled western enthusiasm for this project. The myopia of India's political and economic elite is the biggest stumbling block. The BJP opposed the deal. The Congress staked its government for the deal, but dithered on the integrity of institutional functioning, without which lasting power cannot be built. The BJP, with its Hindutva project, is creating political instability, instilling insecurity among India's minorities.
If India puts its house in order, it will advance, as the US and China joust.