On February 21, the US and China resumed high-level talks in Washington DC to resolve the long-pending frictions in bilateral trade. The message from US President Donald Trump to China was loud and clear: if the matter was not resolved by March 2, the US would impose taxes on $200 billion worth of Chinese goods. The very next day, a triumphant Trump announced, “We are making a lot of progress, I think there is a very good chance that a deal can be made.”

The magnitude of the trade war between China and the US could be appreciated from the following figures: in the first 11 months of 2018, exports from the US to China were only $111.16 billion while Chinese exports to the US amounted to $493.49 billion. Trump’s prescription to resolve the trade war is simple: China should restrict its exports to the US to the same level as its imports from the US.

Earlier, Trump had imposed tariffs on Chinese goods worth hundreds of billions of dollars to which China retaliated by imposing tariffs on $110 billion of imports from the US, soya beans in particular.

Mounting pressure

In fact, none of the former Presidents — from George HW Bush and Bill Clinton to George W Bush and Barack Obama — was able to resolve the matter. During his election campaign, Trump had promised to fix “China’s long-time abuse of the broken international system and unfair practices.” Trump had even branded China as “the grand champion of currency manipulation.”

In August 2017, the US instituted a formal investigation into attacks on its intellectual property. For the US alone, the losses amounted to up to $600 billion a year. At the same time, China had a trade surplus of $323 billion. In a nutshell, the US-China trade war is focussed on intellectual property in China, especially technology.

Trump has offered a three-point solution to China: protection of intellectual property; outlawing of forced technology; and cessation of illegal, market-distorting industry subsidies.

While China has refuted all charges, none can deny that several years of intellectual property theft and forced technology transfers were responsible for the rapid economic and industrial development of China.

In all likelihood, the ongoing trade talks will culminate in a deal between the Chinese President Xi Jinping and Trump next month at Florida. Reduction of bilateral trade surplus between China and the US is bound to be one of the key elements of the proposed settlement. Once the deal comes through, there is bound to be a substantial reduction of exports from China to the US from the current $493 billion; Trump will like to peg it at $110 billion.

Such a reduction in imports from China has to be made good by imports from other countries. Some analysts suggest that India’s exports to the US market will increase when China loses out. Apart from manufactured goods, the US also imports food-related items on a very large scale from China.

The US curbs on these Chinese items should throw up a huge opportunity for Indian exporters. But it is not going to be a cake walk.

The Commerce Ministry has to act swiftly and play a lead role. All the export houses have to work overtime to explore every possibility to promote Indian exports to the US, which thus far have been muted mainly on account unfair trade practices and currency manipulation by China.

The author is a former Staff Member of the IMF.

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