'Trade Wars To Have Less Direct Impact On India'

Ira Kalish, Chief Global Economist, Deloitte, Touche Tohmatsu, talks to Prosenjit Datta, Rajeev Dubey and Joe C. Mathew on how India can do well in spite of trade wars, oil, the state of the global economy and the future of global trade.

- Prosenjit Datta, Rajeev Dubey & Joe C. Mathew

How do you see the trade war playing out?

A: Dr. Ira Kalish: There is a high degree of uncertainty about it. It’s not clear how far we’ll go and what the specific causes will be. There’s evidence that businesses in the US and Europe are putting investments, particularly in the global supply chain, on hold. What we know is that we’ve already had tariffs imposed and there is threat of substantial tariffs as retaliation. On top of that, there is a threat that the US might withdraw from NAFTA and the WTO. The US has done things that undermine the WTO. The dispute resolution mechanism, which adjudicates disputes between countries, is supposed to have seven members. There are only four now. By the end of the year, only one might be left. That would undercut the ability of the global trading system to function. The worst case scenario is very high tariffs and disintegrating global institutions. But it may not come to that.

How will it affect India and China?

A trade war will hurt China and I think in anticipation of that the Chinese central bank has eased monetary policy. A significant trade war will spill over into countries highly integrated into China’s supply chain such as Japan, Korea, Taiwan and some South East Asian countries. It will have less direct impact on India due to the small share of trade in economic activity. On the other hand, India is highly integrated into global services supply chains, and it doesn’t appear that trade wars for now will directly affect services. The least it means is that there’s unlikely to be much progress on globalisation of services trade, something that was on the table a few years ago. That would be a lost opportunity for India. I don’t see a huge negative impact directly, maybe only indirectly, if the global economy slows down as a consequence of a trade war.