The US-China trade war is indirectly helping India boost its exports, but that may begin to hurt smaller economies and others if China’s growth slows down due to the conflict, Beth Ann Bovino, US chief economist for rating company Standard & Poor’s said.
economics
Description
Trade war between US and China helping
India boost its exports”
By Gayatri Nayak
Mumbai: The US-China trade war is
indirectly helping India boost its exports, but that may begin to hurt smaller
economies and others if China’s growth slows down due to the conflict, Beth Ann
Bovino, US chief economist for rating company Standard & Poor’s said.
But the Indian rupee may weaken further if
the US government goes ahead with more fiscal cuts to boosts its economy. It
would force more funds to chase growth there, she said. The Chinese are seen
substituting their cotton imports from US to India and other Asian economies.
“A good example is cotton,’’ Ann told ET in
an interview. “China’s spending on cotton is large. It was first going to the
US. It has now shifted to India.” India’s trade deficit with China has shrunk
over the last two months. The trade war between China and the US has led to
tariffs on both goods treaded between the countries. That has led to China
reducing imports from the US and shifting to countries such as India.
India along with some other Asian economies
are to benefit from the higher import tariffs that China has imposed on the US
in retaliation to US imposing tariffs on steel and aluminum imports through
import substitution.
But the smaller economies may get hurt due
to this tit-for-tat between the two biggest economies. “The small open
economies may get the biggest brunt. India is very large. So, the impact may be
smaller,” she said.
Question:
Assume that output began at its natural
level. By using AD-AS (upward sloping) and Phillips curves and based on the
above report, analyze the short and long run effects of the trade war between
US and China on the price level, output and employment of India.
