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Trade war getting worse

Trade war getting worse

Tag:GS2 || International Relations || India & Rest of the World || USA

Why in news ?

  • The world’s two largest economies are now in a full blown trade — and currency — war, and the dire warnings are piling up.
  • “We may well be at the most dangerous financial moment since the 2009 Financial Crisis with current developments between the U.S. and China,” tweeted Larry Summers, the U.S. treasury secretary under President Bill Clinton.

Origin of the US-China dispute:

  • Trump slapped heavy tariffs on imported steel and aluminium items from China in March last year, and China responded by imposing tit-for-tat tariffs on billions of dollars worth of American imports.
  • The dispute escalated after Washington demanded that China reduce its $375 billion trade deficit with the US, and introduce “verifiable measures” for protection of Intellectual Property Rights, technology transfer, and more access to American goods in Chinese markets.

Why should the world be worried?

  • In a report earlier this year, the IMF noted that the US-China trade tension was one factor that contributed to a “significantly weakened global expansion” late last year, as it cut its global growth forecast for 2019.
  • Also, this exacerbates the uncertainty in the global trading environment, affects global sentiment negatively, and adds to risk aversion globally.
  • The higher tariffs could lead to the repricing of risk assets globally, tighter financing conditions, and slower growth.
  • The trade tensions could result in an increasingly fragmented global trading framework, weakening the rules-based system that has underpinned global growth, particularly in Asia, over the past several decades.

Impact on India:

  • There could be a short-term impact on the stock markets over fears of the escalating trade war between the US and China.
  • In the longer run, while a slowdown in the US economy does not augur well for emerging markets, the trade war heralds a silver lining for some countries.
  • India is among a handful of countries that stand to benefit from the trade tensions between the world’s top two economies, the UN has said in a report.