The trade war between the US and China is gaining momentum, and the European Union is trying to find its place in the clash of giants. After years of stagnation, Brussels is focusing on a new strategy: trade opening and building alliances as a response to Donald Trump's protectionism. Is an agreement with India – a country with a population of almost 1.5 billion people – an opportunity that we cannot waste? Aleksander Ogrodnik talks about this in the latest episode of the “Economic Point of View” podcast with prof. Artur Klimek from the Wrocław University of Economics.
The Trump effect as a catalyst for change?
Although talks with India or the Mercosur bloc have been going on for years, only the recent turmoil in US policy has given them real momentum. As noted by prof. Artur Klimek, it is no coincidence that Europe suddenly dusted off old projects.
– To put it simply, it's all about Donald Trump. However, I believe that it is more of a catalyst than a direct cause. (…) We should thank him for awakening certain instincts, that these contracts, which had been suspended for many years, suddenly gained momentum – says Prof. Artur Klimek in “GPW”
“The mother of all contracts”, 2 billion consumers and… a tough nut
The greatest emotion, apart from the agreement with the Mercosur bloc of countries, is the agreement with India. This is a market that is becoming a new center of gravity in the world demographically and economically. For the European Union, which is struggling with an aging society, India is an “attractive dividend”, argues Prof. Klimek:
“We are dealing with an agreement that will create a common market for almost two billion people. (…) India is still a very young economy, whose population is growing. Here we have an agreement between the second and fifth economies in the world.”
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Prof. Klimek emphasizes, however, that India is a difficult partner that has been applying tough protectionism for years. The average tariff on industrial products there is about 18%, while in the EU it is only 5%.
What will Europe gain? From Airbuses to pharmaceuticals
Cooperation with India is not only an opportunity to sell goods, but above all strategic complementarity. Poland and Europe can benefit from the export of technology, machinery and chemicals.
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Heavy and machinery industry: Reduction of tariffs on cars, machines and aircraft.
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Agriculture: Although this is a sensitive topic, European producers hope to open the market for alcohol (wine, beer) and processed products.
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Pharmaceuticals: India, called the “pharmacy of the world”, is a key supplier of generics and active substances to Europe.
However, as the professor warns, “the devil is in the details.” The EU must be careful not to deepen its dependence on external suppliers in critical areas by opening up to Indian steel or medicines.
The end of the “World Factory”, time for the “Service Facility”
While we associate China with the production of goods, India has become a global services hub. IT and business process outsourcing is already a part of Indian everyday life, which we encounter even when buying airline tickets, says Aleksander Ogrodnik:
“If we said about China that it is the factory of the world, then India is certainly such a service base. (…) It exports services worth almost $400 billion a year”
The signature is just the beginning
Despite optimism, prof. Klimek is cooling down his emotions – it will still be a long time before a political agreement is reached until the agreement is fully implemented. The ratification and implementation process itself may take up to a decade, sums up Prof. Artur Klimek:
“In the case of European Union agreements, the signature means that the process is just beginning. (…) However, this spirit of cooperation is important. Enterprises can already prepare for a positive scenario.”
You can listen to the latest episode of the podcast on YouTube, Spotify and Bankier.pl about whether Europe will win the race for an Indian client, how artificial intelligence will affect outsourcing in Delhi and whether Poland can become a beneficiary of this grand opening.
We invite you!
