InvestorQ : Now that Trump has decided to continue with the trade war, what will China do? How will all this impact Indian markets?
Anjana Aiyar made post

Now that Trump has decided to continue with the trade war, what will China do? How will all this impact Indian markets?

Answer
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Arya Nanda answered.
1 year ago


On Friday, the talks between the US and China on the trade deal did not yield any result. As a result, the $200 billion worth of goods that the US imports from China will now be subjected to higher tariffs of 25% instead of 10%. This will make Chinese products uncompetitive in the US market place. At the same time, it will also make these Chinese products costlier in the US so American consumers also lose in the process because they have to now pay more for these products. Before you worry about the impact on markets, you must also look at what China could do. China has already said that they will retaliate.

There are a lot of things that China can do. They can make life tougher for companies like Apple and Intel which have large manufacturing operations in China. They can also encourage the local Chinese to boycott American products and only prefer Chinese products. China has already done that with mobile phones in the past. Thirdly, China holds about $1.5 trillion worth of US debt and they can make the markets panic across the world. Finally, China can also devalue the Chinese currency to compensate for the higher tariffs. This is what India needs to be worried because if China devalues its currency then India and other Asian countries will also have to follow suit. India needs foreign investments in a big way and that cannot be attracted if the rupee is weak. This is the one measure that India has to really worry about.