China Warns Of "Looming Trade War" With India In Retaliation To Anti-Dumping Duties

One of the more under-reported stories - at least among the Western press - are the growing tension between China and India. As reported over the weekend, in the latest escalation, Indian and Chinese soldiers, in addition to the ongoing tense military standoff over a contested road in Doklam, were involved in an altercation in the western Himalayas on Tuesday, further raising tensions between the two countries which are already locked in a two-month standoff in another part of the disputed border. A widely circulated clip on social media showed many soldiers from the two countries punching and kicking each other and throwing stones, a clash which luckily ended before it could devolve into something far more dangerous.

Meanwhile, in addition to a territorial dispute that has the potential to devolve into a shooting skirmish at any moment as thousands of troops have amassed on both sides of the border, a trade war also seems to be looming between India and China after New Delhi imposed anti-dumping duties on 93 Chinese products amidst a military standoff in Doklam area, India's First Post reported last week.

The Indian publication cites an article in China's state-owned Global Times, which urged Chinese firms to "reconsider the risks" of investing in India and warned New Delhi to be "prepared for the possible consequences for its ill-considered action." The article said that China "could easily retaliate" with restrictions on Indian products, but added that it "doesn't make much economic sense" for the country.

Making a less than subtle hint that a trade war would have damaging consequences on the Indian economy, the Global Times cited figures from the Indian embassy in China to show that Indian exports fell by 12.3% year-on-year to $11.75 billion while India's imports from China rose by 2% to $59 billion, resulting in a trade deficit of $47 billion. Meanwhile, according to the Indian Commerce Ministry, the trade deficit with China last year mounted to over $52 billion when the bilateral trade stood at $70 billion.

Dispensing with diplomacy, the Chinese publication warned that "a trade war between China and India seems to be looming after the latter moved last Wednesday to impose anti-dumping duties on 93% from China," and added that "if India really starts a trade war with China, of course China's economic interests will be hurt, but there will also be consequences for India."

Meanwhile, the Global Times also took a swipe at the ongoing military standoff in Doklam in the Sikkim sector where India has protested the construction of a road by the Chinese military in the area claimed by its ally Bhutan, fearing it would allow Beijing to cut off India's access to its northeastern states. The Global Times report strongly cautioned India that "given the tense bilateral trade ties, China may consider temporarily suspending investment or economic cooperation projects in India to ensure the security of these investments."

A separate article in China Daily likewise warned that boycotting Chinese goods would harm India's economy.  Referring to the calls of boycott of Chinese products, it said the ongoing standoff in Doklam seems to have spilled over into bilateral exchanges.

"Suffice to say, calling for the boycotting of Chinese products and those related to Chinese investors is not just a fool's errand but also risks backfiring," it said and added that "it is the Indian economy that will suffer because of the boycott," it said. The editorial concluded that any attempt to keep Chinese cellphone companies at bay or shut down Chinese-invested factories will hurt the Indian economy and cost Indian jobs.

Separately, on Monday China expressed "strong dissatisfaction" with the U.S. decision announced on Friday to probe its intellectual-property practices and pledged to respond if needed. China's Commerce Ministry said that the U.S. "is irresponsible because it’s conducting the review under domestic laws and disregarding World Trade Organization rules." It also said that "the accusations against China aren’t objective and the probe sends the wrong signal as the countries are already making progress on separate negotiations", adding that the international community and U.S. industries will oppose the investigation.

The Commerce Ministry said the U.S. should work with China to press ahead on the one-year economic cooperation plan and keep bilateral economic ties on a healthy and stable track. It urged the U.S. to respect multilateral trade rules and act prudently, adding that the country will monitor the probe’s progress and take appropriate measures to defend China’s rights.

Going back to the latest spat between China and India, while it is still early to make a determination on how this latest trade escalation between the world's two fastest growing economies will be resolved, the troubling reality that China may soon - in a worst case scenario - find itself engaged in trade war on two fronts, with both the US and India, would have significant adverse consequences not only for the Chinese economy but would lead to another negative shock for the entire world, something which we doubt that central bankers are even remotely contemplating as they finalize their Jackson Hole speeches this Friday.