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US-China trade rivalry will hurt the global economy

China announced a hike in the tariffs on a revised list of $60 billion worth of US imports.

The US and China are at the cusp of a major transformation of their relationship. While the US has signalled since 2017 that it sees Beijing as a strategic competitor, the moves that have unfolded in the past week could lead to a complete breakdown, with the rest of the world scrambling to cope with what could be fairly drastic consequences.
First, the trade talks broke down. Both sides put out their respective positions and there seems to be no meeting ground. Hopes are now being placed on the Xi-Trump meeting on the sidelines of the G-20 meeting in Japan at the end of June. But in the meantime, the US has moved to sanction Huawei, the world's leading telecom company, an action that could be a prelude to a wider fracture between two of the world's largest economies.
On May 5, on the eve of what was being billed as the final round of US-China trade negotiations, US President Donald Trump  announced  10-25 per cent tariffs on $200 billion worth of goods because, he claimed, China had reneged on commitments. These tariffs had been in suspension in the wake of the Trump-Xi meeting on the sidelines of the G-20 in Argentina last year.
But when the talks took place on May 10, instead of declaring an end to the trade quarrel, the US said the tariffs imposed on the eve of the negotiations would remain in place. Further, Trump ordered his officials to begin the process of raising the tariffs on everything else that had not been hit by previous levies, which could amount to some $300 billion worth of goods.
While departing, Chinese special envoy Liu He invited his American counterparts Lighthizer and treasury secretary Steve Mnuchin for another round of talks in Beijing, but White House economic adviser Larry Kudlow has said that, as of now, there were no plans for further discussions.
Subsequently on May 13, China too announced a hike in the tariffs on a revised list of $60 billion worth of US imports.
This set the stage for a dramatic escalation in the standoff when, earlier this week, the Trump administration cracked down on Huawei. In an executive order on May 15, Trump said that in order to safeguard the Information and Communications Technology supply chain and prevent "foreign adversaries" from exploiting American weaknesses or using US equipment to create such vulnerabilities, he was declaring a "national emergency." As part of this, heads of various departments of the government were being empowered to determine who these foreign adversaries were and deal with the situation.
A similar ban, later revoked, on another Chinese company ZTE, brought it on the verge of collapse. Huawei is much bigger, is a technology leader in its field and is better prepared for the situation.
As of now, we are not sure whether Huawei will be banned completely. The outcome of the trade negotiations and action against Huawei are interlinked. Moves against the company had actually been delayed as talks progressed through this year, but now, with the talks stalled, they were unrolled.
Reports say that Huawei has stockpiled enough chips and components to last out a year comfortably. This could presumably be seen as the time-frame for de-escalating the conflict. Should that not happen, the Chinese could act against US tech giants like Apple, Qualcomm and Broadcom who are vulnerable because of their dependence on the Chinese market. Greater China contributes 20 per cent of Apple's revenue and accounted for over 60 per cent of Qualcomm's sales last year and 17 per cent for Broadcom. As in the case of the US, retaliation would also end up hurting the Chinese because its prominent smartphone makers like Xiaomi and Oppo depend on US chips.
The Trump administration's actions are popular in the US and could well be setting the stage for the 2020 elections. They are being followed by Bills being proposed by individual legislators promising even more drastic action.
Trade experts say that there are opportunities for export for India in sectors like garments, agriculture, automobile, information and communications technology and machinery. But barring garments, India lacks the scale to replace China in the global supply chains. Equally, India has opportunities in the Chinese market. Beijing has been slowly opening up its market to India as its troubles with the US have intensified.
Actually, in the longer run, everyone will be a loser. Asean countries which are touted as the best alternatives to some parts of the Chinese supply chain are also vulnerable to the fall in demand for parts and components that China imports for assembly into final products that are exported to the US. Disrupted supply chains, greater protectionism, a decline in exports can all lead to a global economic slowdown which is obviously not good for anyone.
-thewire.in
Manoj Joshi is a distinguished fellow, Observer Research Foundation, New Delhi