DNA Edit: US, China face off - The trade war will impact the Indian economy

When two trade giants come to blows, it is bound to take its toll on other lesser players. Days after the US announced steep tariff hikes on $300 billion worth of Chinese products, Beijing has hit back raising tariffs on over 5,000 US products worth $60 billion.

The new rates, which will kick in from June 1, range from 5 per cent to 25 per cent. How does this trade confrontation between two economic superpowers affect India?

It is certain to leave its imprimatur on the Indian economy. China’s imports, hit by the US levy, do create a void and opportunity for India in the soya bean, textiles, gems and jewellery exports market to the US, helping it expand its footprints.

Being the largest consumer of base metals, China will be negatively impacted. Gold is safe and could benefit, while crude oil prices will fluctuate, resulting in a global slowdown. This, too, may help India. But the downside remains formidable as well.

A trade war is bad news, leading to inflation and low growth in the economy. Its impact on the stock markets was already evident on Monday when the Sensex slid for the ninth session on the trot, reaching a two-month low. India’s capital flows could be affected and foreign direct investment may see a slowdown.

Levy of high taxes raises the production cost of items meant for import. It may lead to related consequences like increased prices of raw material and jacking up interest rates.

The most important impact could be India’s bad loans situation, which is likely to face more global and domestic challenges. The value of the rupee declining steadily to an all-time low will coincide with weakening of the US dollar, triggered by a fresh round of tariffs. None of this sounds good.