US vs China: India's high-stakes trade walk

As many commentators have pointed out, India's manufacturing sector stands to gain from the US-China trade war.

- PROSENJIT DATTA

What is less discussed is that this opportunity will require a tightrope walk by Indian policymakers. That's because both the US and China are increasingly following the principle of the enemy's friend also being an enemy.

The US wants trade partners who can supply goods that were earlier sourced from China. But it is also clear that it will scrutinise the "country of origin" very strictly. It does not want products that are fully—or even mostly—made in China to enter the US market via another country acting as a post office. Ideally, it would like its trade partners to stop doing business with China altogether.

China is equally clear that it wants to bring the US to its knees by denying it critical materials and other goods. Rare earths are one such example. China intends to not sell rare earths to another country from which goods using these materials might be shipped to the US. It has already told South Korea not to supply products containing rare earths to US defence firms, according to reports. It is also moving to deny manufacturing technology and expertise in a range of areas where it dominates the global supply chain to countries that could sell those to the US.

India is inclined to a trade pact with the US. It does not make sense for the country to let go of the big consumer market that the US represents. In fact, the US is one of the few countries with which India has a favourable trade balance.