The Global Trade Disorder: A Zero-Sum Game?

Can India benefit from the US-China trade dispute?

The US-China trade dispute is now well into its second year and the longer this dispute between the world’s two largest economies drags on, the more it undermines global growth prospects.1 So what does this mean for emerging markets like India? Will they suffer from the fallout - or can they successfully turn the situation to their advantage?

The latest Standard Chartered Connectors event, held in Mumbai on October 14, sought to answer this question. The dialogue for this event picks up from the debate at the first edition, held in New York in late June, where participants expressed hope that a moderate voice would prevail in the trade dispute.

Not just a trade conflict

Speaking at the event in India’s commercial capital, Arvind Subramanian, visiting lecturer at Harvard University and former Chief Economic Adviser to the Government of India, argued that the US-China conflict goes beyond trade. “This is an existential battle for who is going to dominate the world, who is going to be the superpower, who is going to be the hegemon shaping the world order over the next 10, 15, 20 years.”

However, he noted, the rivalry between the US and China differs from past superpower showdowns because the economies of both nations are deeply entwined. Therefore, a further prolonging of the conflict in an increasingly globalised world would have major ramifications for the global economy.

As it stands, the International Monetary Fund (IMF) has estimated that the US-China conflict will bring down global economic output by nearly 1 per cent in 2020 and possibly inflict further losses down the road.2 And despite reports that China and the US have made progress in negotiations, the situation is far from resolved.3

As Max Baucus, former United States Ambassador to China (2014- 2017), observed: “The latest so-called trade agreement that was announced is really not an agreement it just putted the big questions down the road.”

While the panellists agreed that the uncertainty unleashed by the trade dispute is unlikely to improve in the short term, they warned that it would be a mistake to try to stop China’s rise or decouple from its economy in any way. “There’s only mutually assured destruction possible if you decouple,” Mr Subramanian said, pointing to the reliance of both the US and Chinese economies on bilateral trade, and China’s significant holdings of US debt.

Standard Chartered Connectors Mumbai Connecting with Arvind Subramanian

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Finding the silver lining  

Despite the gloomy outlook, there is ample scope for countries like India to capitalise on the changing global trade order in the future, the panellists agreed.

“This is a relationship that has a good long-term future because it’s based on fundamentals — common values, the diaspora, democracy,” Mr Subramanian said. Mr Baucus agreed, pointing out that the US wants India to be a strong ally.

Mr Subramanian noted the Indian government’s efforts to attract trade and foreign direct investment (FDI) such as streamlining regulations and taxes, and maintaining a competitive exchange rate. But, he argued that while India has opened up to FDI, it has still not fully embraced free trade as a number of barriers remain in place.

This was a point echoed by Mr Baucus who urged India to do more to bring down tariffs and highlighted opportunities in the tech sector as an ideal place to explore synergies.

India’s struggling manufacturing sector too was seen to gain as it looks to lure companies away from China in the wake of the trade dispute. Citing the example of Taiwan-based electronics manufacturer Foxconn, which plans to open two assembly plants in India by 2023 to add to two existing ones,4 Mr Subramanian said that it would be ideal if India can repeat successes like these.

Opportunism versus opportunity

Nonetheless, Zarin Daruwala, CEO of Standard Chartered, India, stressed that India cannot be immune to the trade conflict. Emphasising the need for the country to actively capture opportunities arising from the trade conflict, she sought to highlight the difference between opportunism and opportunity.

“While the trade conflict calls for some opportunism on our part to secure quick wins, it is only through decisive and sustained steps over the next few years that we can turn ourselves into one of the most attractive investment destinations, not just for the next two years but for the next 20 years and beyond,” she said.

Predicting a “quantum leap” forward for India with help from sensible long-term policy changes, Ms Daruwala said: “It is not about GDP growth. Rather, it’s about a virtuous cycle of demand and investment which can support the growing need for employment.”

Standard Chartered Connectors Mumbai Event Highlights

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Together we CAN

Ultimately, the panel discussion in Mumbai answered the question of whether the current fight for economic and trade supremacy between the US and China is a zero-sum game with a resounding ‘no’.

The panellists also sought to reframe the debate in a positive light by invoking the message from the introductory address by Simon Cooper, Chief Executive, Corporate, Commercial and Institutional Banking at Standard Chartered.

“Complexity, adaptability and network are three words that have come to define a changing world order marked by shifting trade patterns, technological disruption, low interest rates and falling growth,” Mr Cooper said, adding: “It’s no coincidence that the first letter of each of these words spells CAN, hence our view that addressing these three challenges will help us all navigate and indeed thrive in the current environment.”

This message resonated with the panellists with Mr Subramanian urging the world to turn the conflict into a win-win by working together to find a healthy balance between competition and cooperation. In agreement, Baucus concluded: “Networking, connecting, helping people talk to each other – that is the way forward for growth and progress.”

1 https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019

2 https://www.reuters.com/article/us-imf-economy/global-economy-far-from-recession-imf-official-says-idUSKCN1VY2DT

3 https://www.cnbc.com/2019/10/17/china-says-us-must-cancel-new-tariffs-for-ultimate-trade-deal.html

4 https://www.livemint.com/industry/manufacturing/the-iphone-s-make-in-india-story-1567093541226.html

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