Low-cost labour is India’s best weapon in trade war

Trump fired the first shot, and now the battle is joined. China on Friday imposed an additional 34% tariff on US goods �?matching Trump’s impost from Wednesday. The effective rates, taking into account tit-for-tat tariffs from Feb and March, are much higher. It looks like the world’s biggest buyer and biggest seller �?together accounting for over 40% of global GDP �?are unwilling to do business with each other. Which is not a good omen for the rest �?India included �?who are links in the global supply chain turning around these two cogs.

India, which got off relatively lightly with a 26% Trump tariff on Wednesday, was looking at $8-10bn in lost export earnings over six months. But China’s strong retaliation has increased uncertainty to a different level. Right now, investors are in panic. On Tuesday, investment bank Goldman Sachs had raised the probability of a US recession to 35%. By Friday, its bigger rival JP Morgan Chase was predicting a 60% chance of a global recession this year.

For India, a global recession �?if it occurs �?couldn’t strike at a worse time. The last one in 2008-09 came after five years of strong growth. This time, we are in the midst of a slowdown. So, govt must act fast. Trump wants a counterweight to China. AI and semiconductors aren’t our forte, but we have abundant cheap labour. However, our industrial estates are tiny compared with the competition. To become a manufacturing hub, we need to offer scale across the country, not just in a handful of industrialised states. While trade with US has grown steadily, we now need to diversify. That means striking deals with other nations and blocs. China, despite all reservations, is a manufacturing superpower, and the recent thaw in relations should be nurtured by India.

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This piece appeared as an editorial opinion in the print edition of The Times of India.

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