
What is the trade war between US and China and why does Nifty and Sensex react so much?



The trade war between the US and China has been going on for close to a year now. The US runs a trade deficit with China (imports more than exports) of $620 billion with China and when Trump got elected he had promised to reduce this deficit. Trump has made two accusations on China viz. they were dumping products cheap into the US and secondly they were misusing the intellectual property of large IT and pharma companies operating out of China. Currently, the import duty on Chinese imports is around 10% and the US is now planning to increase this import duty to 25%.
Why does this matter to India? When import duties are raised, then China will also retaliate. That means; there is loss of jobs in both the countries and lower growth. Already IMF has stated that because of trade war the growth would fall by 0.3%. This will impact India’s export markets. Also, it is possible that China may weaken its Yuan and so rupee will also weaken. All these are risks for India and that is why the Nifty and Sensex are also falling so sharply.