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Make In America And Make In India Cast Shadow On China’s Growth
Region : AsiaNorthEastAsia/ChinaIndia,
Issue : Security,
The Trump era begins with the World Economic Forum at Davos ending in shivers and a threat to globalization. The summit – the world’s biggest economic forum, embracing global, regional and industry agenda – was dormant without active participation from the USA. The Gaurdian said Davos without Donald Trump was like Hamlet without the prince .

Eyebrows were raised over Chinese growth, which depends on its globalization plank. This was reflected in the President Xi Jinping ‘s inaugural speech, when he said, “The point I want to make is that many of the problems troubling the world are not caused by economic globalization.”

The threat to globalization was reinforced by President Trump’s executive order to pull the US out of the TPP as one of the first moves, coupled with his committing to reduce corporate taxes to 15 percent to 20 percent from 35 percent provided they bring back their production to USA. Nullifying the guesses that his campaign was just rhetoric, these moves signaled Trump’s style of economic diplomacy is in tune to his campaign pledges. Isolating the USA from multilateral trade deals and flexing American manufacturing muscles premise his prime objectives to promote Make in America through protectionism.

Trump’s moves can be viewed to being similar to Prime Minister Narendra Modi’s Make in India initiatives that are aimed at triggering growth . Both are pursuing inclusive growth, overturning globalization as a tool for growth. The force behind the growth for both leaders is job creation. Trump’s America First campaign aims is to create more jobs for Americans, by curbing US potential for foreign cheap labor and Modi’s Make In India aims for more job creation focusing on the expansion of manufacturing in the country.

Given the focus on Trumpnomics and Modinomics to spearhead job oriented growth, globalization in the world is poised for a downturn, which could mean China will be forced to embrace ‘hard times’ to retrieve its growth. Trump’s isolationist policy, bolstered by America First, will impede Chinese growth.

China is an export-oriented economy. Trump’s import substitution plus approach through tariff barriers and encouraging domestic production through corporate tax incentives will bring back American investors back to the USA. Similarly, Modi ‘s Make in India will reduce dependence on imports from China. Currently, China accounts for the biggest share of India’s imports, fueling a wide trade deficit. The policies from both the US and India will prove a double whammy for the export-led Chinese growth, which is already reeling under over-capacity due to stagnation in the global export market.

The USA has been the engine for export–led China’s economic growth. It is the biggest export destination for China. Trump’s threat to impose a 45 percent tariff on Chinese exports will stir up a trade war between the USA and China. China has vowed to initiate retaliatory measures. But, when looking at the trade powers of both countries in their respective economies, this suggests that China will be in a weaker position in such a race.

The USA shares 18 percent of China’s export, while China accounts for just 7 percent of American exports. The USA is much wealthier and stronger than China and has more room to withstand China’s retaliation. This means that China will be a loser in terms of export damage, resulting in the loss of thousand of Chinese jobs if the Asia country initiates retaliatory measures.

Even though China’s President Xi Jinping jeered in World Economic Forum at Davos that, “ No one will emerge as a winner in a trade war”, historically, the USA has been a good wager in betting for trade wars. Japan is a case in point. In 1985, the Reagan Administration’s Plaza Agreement between the USA, France, UK , Germany and Japan to intervene in currency market and devalue the US Dollar against Japanese yen to decimate Japan’s vehement exports to the USA brought Japanese exporters to the table. When the Japanese yen value skyrocketed, Japanese exports turned expensive, letting American goods become insulated from cheap Japanese goods particularly the US automobile industry, and created a safety net. Japan faced major damage to its domestic industry, resulting in Japanese manufacturing shifting to low-cost countries and creating a hollow investment in the country.

China admitted that it is the biggest beneficiary of globalization. This is the prime reason that China has been a big supporter of free trade deals. Anti-globalization will restrict Chinese growth. According to the Beijing custom official Huang Songpin, “The trend of anti-globalization is becoming increasingly evident, and China is the biggest victim of the trend .” Given the protectionism intensifying in Trump era, fears looms large over Chinese growth.

In 2016 China witnessed a three-decade slow pace of economic growth. It pinned 6.7 percent growth in 2016 against 6.9 percent in 2015 and the weakest since 1990’s 3.9 percent. Beijing warned of L-shaped growth, meaning once the downturn ends, growth is unlikely to rebound.

Similar concerns were leveled against Chinese growth by India’s gear up in manufacturing, triggered by Make in India initiatives. According to a Chinese daily, China’s manufacturing will rally behind India. It warned China for losing its competitive edge in manufacturing that could spin a major dent to job opportunities in China.

Foreign investors were on a spree to dislocate their manufacturing activities to low-cost countries, and targeting countries such as India and Vietnam.

The recent decisions of Apple for setting up manufacturing facilities and Chinese largest telecom company Huawei Technologies Co Ltd to set up smart phone manufacturing plant in India unnerved the Chinese daily. Along with Apple, the daily warned, its production chain Foxconn will shift to India, causing the loss of thousand of jobs in China. Foxconn is the contract manufacturer for Apple and is the world’s largest contract manufacturing company in electronic industry . Foxconn has decided to invest US$5 billion in India.

If Apple expands in India, it may lure other tech giants in India– and China is likely to face more transfer of supply chains to India, the Chinese daily warned.

As such, the world will witness a turnaround in the global strategy for economic growth – from globalization to inclusive growth. This will reinforce the return of inward oriented growth, leaving behind the globalization plank as the trigger for growth. Given the situation, China needs to spur its domestic demand to reinvigorate growth, instead of retaliation.
*S. Majumder, Adviser, Japan External Trade Organization (JETRO), New Delhi. Views are personal.
This Article first Published at Eurasia Review Jan 27,2017
Views expressed are of the author and do not necessarily reflect the views of FORE INDIA

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