After the Second World War, the entire world is gripped with fear of the third world war as certain nations are fully equipped with highly destructive war weapons which have the attitude and latitude to script the destruction of the entire globe at single go.

But no country would have ever seriously imagined of trade wars that have the knack to transform the financial landscapes of a countries in an integrated world.

Developing Economies (India and China) and world influential economy (America) are now engaged in trade wars against each other by daunting heavy tariffs on the imports of one another.

In this backdrop, Indian economy is exposed to global macro developments (US Trajectory and Trade war risks) as a consequence of Weak macro-economic indicators like current account deficit and inflation.

According to official statistics, during the December 2017 quarter, India’s current account deficit widened to USD 13.5 billion or 2 per cent of GDP compared to GDP (USD 8 billion or 1.4 per cent) in the year-ago period.

 This trade war may hinder the momentum of the Indian foreign exchange reserves by the widening current account deficit, pushing back of fiscal consolidation goals and inflation expected to remain above target next year. 

Another concern is that the import duties imposed by the Indian government in its recent budget and its export subsidies at the World Trade Organization are challenged by the United States – India is on the radar of countries to face higher tariffs on imports to the United States.

Any upsurge in trade tensions involving United States may impact the economy growth prospect of India and rupee may persist vulnerable to US monetary policy trajectory and trade war concerns.

Experts are of the opinion that the risks of trade war may have limited material impact on India’s trade owing to the fact that 10 per cent of the India’s iron, steel, and aluminum exports involve the United States.

However, one cannot rule out the prospect of upshots might get deeper impacting the development of Indian economy provided more blanket tariffs are imposed by the United States.

Due to the trade war, India is not only the nation whose economy development is at stake – the economic development of China and United States will also get effected equally.

It is high time for the nations indulged in the trade war to reconcile amid themselves and reach a pact benefitting all the parties concerned to avoid negative consequences on the world economy or else world economy has to suffer a huge setback in terms of financial and business development impending the overall development of the world economy.

Research inputs by Paruchuri Baswanth Mohan