India is starting to reap short term benefits from the US-China trade battle

While we expect that the potential trade war between the US and China will mostly be bad for everyone involved, including India, we did suggest that there could be some short-term trade benefits for India.

It seems that those benefits are going to come to fruition sooner than expected. Yesterday, Luo Zhaohui, China’s ambassador to India, said that tariffs on 8,549 goods from India and other Asian countries would be lowered or waived completely.



The lower tariffs, which will be effective from July 1st, are part of the Asia-Pacific Trade Agreement (APTA), which is currently in its fourth round of negotiations.

The goods mentioned in the tweet - soybean, clothes, agricultural commodities, medical products, steel and aluminium and chemicals - are mostly the same ones that China imports from the US. In essence, it is a strong-arm move to show the US that it can get these products from its neighbours.

In response to a move by the Trump administration to impose 25% tariffs on $50 billion worth of Chinese goods earlier this month, China said it would raise duties on $34 billion worth on imports from the US.

Protecting Chinese consumers

China is mainly reducing the tariffs on these goods from other countries to help its domestic consumers, who would have otherwise had to deal with higher prices. The expansion of trade ties with its neighbours like India is an added benefit.

The move will prove a blessing to Indian exporters and producers of these goods, who will greater access to the Chinese market as they get preference over their counterparts from the US. It will particularly help producers of soybean and sugar.

However, to prove effective, they need to be supported with less stringent regulatory clearance requirements and administrative hurdles.

Lower trade deficit

China has pledged to allow Indian exporters greater access to its markets, especially for agricultural and pharmaceutical goods. Last month, it announced it would host an import-only fair in November wherein 100 Indian exporters were invited to participate.

The lower tariffs will be a more comprehensive solution. They will benefit Indian exporters on a micro level. Additionally, on a macro level, the greater market access will also help in reducing India’s trade deficit with China, something that the Chinese ambassador alluded to in his tweet.

India exported a mere $13.3 billion worth of goods to China in the last fiscal year, compared to $76.2 billion worth of imports. The levelling of the playing field is long overdue, and the lower tariffs are a step in the right direction.