Iran sanctions bigger concern for India than risk of Chinese dumping: Alastair Newton

If Donald Trump were to sign up to a deal with China which was perceived as being a weak deal from the US perspective, the Democrats would be all over him, said Alastair Newton, Co-founder & Director, Alavan Business Advisory, in an interview with ETNOW.

Edited excerpts:

Is it right to say that it is the recent American economic data is lending confidence to Trump to impose these kind of tariffs?

I certainly think that is a factor -- the irst quarter results and the general performance of the US stock market have been better than expected in case of economic performance. The stock market has been on a pretty much one-way track for ages. So, I do not think there was anything particularly surprising about that.

But I do not think it is just about where America is today economically, I also think there is a very strong element at play here of electoral politics. Keep in mind that if there is one issue on which Democrats and Republicans are largely united, it is in their concern about China and the fact that sentiment about China and trade is largely bipartisan means if Donald Trump were to sign up to a deal with China which was perceived as being a weak deal from the US perspective, the Democrats would be all over him.

We have already seen Chuck Schumer, the minority leader in the Senate, pushing Trump very hard to take a tough line with China. Indeed, I would go further than that. It appears that in general terms, if we consider US-China, if we consider US-Iran, if we consider the lines which Trump is taking domestically over the aftermath of the Mueller investigation attempts by the Democrats in the House to subpoena various documentation including his tax returns and so on, it looks like the Trump campaign team, already has decided to portray President Trump as a tough guy looking after American interests, pushing back against the supposedly socialist Democrats line that they have decided to take in the election campaign.

How detrimental would these tariffs be for the American economy? Would it hurt consumer sentiment hard enough for the White House to consider a partial rollback?

I certainly think it is going to hurt consumer sentiment and I do think if it drags on, the impact could be significant. We are talking about 25% tariffs here potentially on all imports from China and the tariffs we are seeing to date have been relatively small; 10% and it has been possible for basically Americans purchasing those items - -which does not mean the people on the street but rather wholesalers or people who are manufacturing things.

It has been possible for them to absorb a great deal of that 10% within and basically to see their profit margins reduced. That is not going to be possible from here on for two reasons; first 25% is far too high for producers to absorb and secondly assuming that we do get today the announcement that Trump is going to extend the tariffs to more Chinese imports, inevitably that is going to hit products which are going straight into the shops in America and they are going to pass on a significant proportion of that to consumers.

Now the exact proportion is not clear but even if we saw only 20-25% of the 25% increase, in other words something between 5-6% hike in consumer prices, that is not negligible and certainly would outpace the speed of average wage growth in the US which we have seen over the course of the past year. That is bound to have an impact on the sentiment in the US over time. If it is short lived, Trump will get away with it, if it drags on, he has got a big problem.

Do you see collateral damage in the form of India where there could be an impact on imported goods like steel and aluminium?

There certainly is a risk of that, although I would say that Europe is more likely to take a hit than India, Europe being of course, China’s biggest export market but there are other things which India needs to worry about right now in American policy and a good deal more than US-China. India needs to be very focussed on US policy towards Iran. There is likelihood of oil prices going up. Yesterday, there was alleged sabotage to tankers in the Strait of Hormuz. That in itself causes concerns and of course, India also stands to be hit by US sanctions if it continues to buy oil from Iran as I think it will in the near term.

I would regard that as a bigger concern for India today than the risk of Chinese dumping into the Indian market.