Twists & Turns in Trade War

US secretary of state Mike Pompeo’s stopover at Beijing on October 8 may not have been a pleasant experience, more so in the backdrop of accusation of US vice-president Michael Richard Pen­ce about China attempting to interfere in US elections. The agenda of North Korean denuclearisation, where the US and China were broadly agreeing earlier, seems to have taken a back seat, and improvement of relations doesn’t seem to be realistic in near future. The ongoing trade war continues as both sides dig their heels despite being the biggest trading partners of each other, because it is also linked with global dominance, strategic and military posturing, diplomatic and information offensive.

China is putting a brave front despite being badly hit at some of its most vulnerable spots in the tit-for-tat trade war with both sides spiralling the slapping of tariffs on a wide range of each other’s trade items. Taiwan, which is another sensitivity of Beijing, is witnessing visit of US officials after the Taiwan Travel Act was signed by president Trump, with a promise to arm it further with latest weaponry. The US continued military posturing in South China Sea, along with the appearance of the British warship ignoring Chinese repeated warning is another concern. A recent injection of over $110 billion by China into its ba­nks and hardly any financial benefits coming out of the Belt & Road initiative (BRI) partners incapable to repay anything is tightening its financial freedom for global dominance. Some of its BRI partners want to get out of the ‘debt trap’ by refusing/ reducing Chinese investments is adversely affecting Chinese dream project, aft­er 5 years of its announcement like the Philippines.

Not a smooth sail for US

The US on the other hand cannot be celebrating either, with China digging it heals and refusing to give up either in trade war or the South China Sea. On North Korean front, the policy of good optics continues with Kim managing to get a lot of goodies from South Korea (presumably at their cost), during the last summit of North Korea and South Ko­rea. Kim in fact has been an outright winner, managing to get another summit with president Trump, which he­l­ps him in convincing his countrymen of his sound le­adership, as well as boosting his status internationally. The US sanctions on paper continue, but after the chest thumping at the Singapore Summit, his friends like China automatically relaxed sanctions on North Korea, without any worthwhile denuclearisation/reduction in his nuclear/missile arsenal. The US realises that knocking out China financially is the key to its global dominance; hence is unlikely to soften up to China. The US also faces another challenge of keeping its allies, like Japan and South Korea, satisfied while negotiating with North Korea and asking the Association of Southeast Asian Nations (Asean) to make choices of partners, besides continuing with CAATSA (Countering Am­er­ica’s Adversaries Through Sanctions Act) hurting so­me of its strategic partners who could be helpful in balancing China.

It will take some time to see that whoever has greater resilience to withstand the economic standoff and appetite to take setbacks will have an upper edge, which seems to be the US at this point of time. As per IMF assessment, China’s GDP size will be 1.6 per cent lower in 2019 than it otherwise would be, if the US slaps tariffs on all Chinese imports.

Impact on India

The Indian economy has survived some global slowdowns earlier and should be able to sail through the present one. The bigger problem is the sanction under CAATSA in dealing with Russia for urgently needed military hardware like S-400 and Iran for cheaper crude oil being paid in the rupees, for which India has adequate refineries. The US option of buying shale oil does not suit India as it does not have adequate refineries and will have to purchase finished product in the dollar. The port of Chabahar is also crucial for India for connectivity to Afghanistan and Central Asian Republics. The silver lining is that the US being our strategic partner will like to have well equipped Indian Forces to balance China and Indian connectivity to Afghanistan, in case Pakistan does not serve their strategic interest. On both counts I am hopeful that the US will find a way out not to hurt its strategic partner.

 (The writer is Seva Medal, Vishisht Seva Medal awardee and chief instructor at USI of India)