Trump tariffs can hurt global trade by as much as 6%, annually.

Background

Readers would recall that Trump had promised to his supporters that he would bring back jobs to the Americans. Over the years, several American steel and other manufacturing plants had shut down because of ‘cheap international imports’.

After Trump came to power, he announced several steps to bring back to the American their jobs. First, he withdrew from the Trans -Pacific Trade Partnership which was signed by his predecessor, Barrack Obama.

Next, Trump decided to launch an investigation into cases of theft of American intellectual property by ‘Chinese firms’.

That was not all, a few weeks back, the American President imposed new tariffs on steel and aluminum imports. In addition, he also promised to come hard on other China-made products to reduce the trade surplus with that country.

The new trade duties on aluminium and steel were 25% and 10 % respectively.

Within a matter of days after the announcement of new tariffs, China also announced its own measures to restrict American imports. In short, a full-blown trade war is looming large on the horizons of the global economy.

Impact on EU-US trade  by Trump tariffs

A Reuters report dated March 9, 2018 says that European steelmakers are hoping for a  breakthrough in trade talks between EU and the US. Essentially, these steel companies want an exemption from the US on revised steel duties and tariffs.

As soon as the new duties were announced by the Trump administration, the European steel markets dipped a bit. Key steelmakers like Arcelor Mittal and Tata Steel saw their share prices slide down by as much as 0.6%.

However, many steelmakers also said that revised steel tariffs will have a negligible impact on their financials. 

EU is the biggest exporter of steel to the United States. It accounts for 5 million tonnes out of the total 35 million tonnes of steel imported by the US.

The Dutch bank, ING, estimates that the contribution of EU steel and aluminum exports to US  is just 0.3 % of the bloc’s global trade. However, should the trade war flare up between the EU and the US, then its impact could knock 0.4% from US growth and 0.3% from the EU. This is a significant statistic as it will adversely affect several US and Europe- based businesses.

Another worrisome statistic- should the steel tariffs be raised by 10 percent over the proposed levels, it would reduce the global trade by 6%.

Already, the EU has declared that it will raise import duties on a range of high profile American goods. It has also promised to start a case against the US at the World Trade Organization.

Impact on Canada

For Canada, the new tariff structure is indeed worrisome. More than 90 percent of Canadian steel goes to the United States according to the Canadian Steel Producers Association. 

Post the imposition of new duties, Canadians will have to pay more for their cars, refrigerators, and beer. The Canadian economy will lose around USD 3 billion a year because of new steel duties. This hit would be the biggest for any country. In contrast, China will lose just USD 650 million annually because of increased American tariff on steel and aluminum.

Canadian steel and aluminum industries employ around 30,000 people and analysts warn that there would be significant job losses in these industries. 

But interestingly, post the new tariff regime, Canadian GDP will slow down by just 0.2-0.3 %.

On China

Morgan Stanley estimates that the Trump tariffs will reduce total Chinese exports by just 0.8 %. The Chinese GDP will be hit by just 0.1 %, the same report says.

Trump has identified a list of 1,300 plus items that can attract revised tariffs. 

Various experts also say that the Made in China initiative will be severely impacted by these protectionist measures.

Industry analyst firm Zeishang Securities says that the impact of these new duties will be limited to factories making low-end components and machinery for US brands

US companies based in China will also be hit by these measures. For example, General Motors will find its Chinese operations unviable in the medium to long-term.

The Modi-Putin summit at Sochi is expected to take stock of Bharat-Russia relations. What are the business opportunities in Russia for Hindu businessmen?

The agenda-less Modi-Putin summit comes on the heels with the Bharat-China dialogue held in Wuhan a few weeks back.

Former Bharteeya ambassador to Russia PS Raghavan says that it is a very good idea for both the two nations to have frequent and regular consultations with each other given the fact that the geopolitical order is changing very quickly.

This summit called at the instance of Putin, is also expected to reset the bilateral ties. There have been several observations in media and political circles that Russia and Bharat are not on the same plane on several issues. The Opposition parties have blamed the NDA government for allowing Russia and Pakistan to come closer at the cost of Bharat.

Mr. Modi is meeting Vladimir Putin in the shadow of the American sanctions imposed on Russia in April 2018. These sanctions might impact Bharat’s business ties with Russia.

Bharat- Russia trade  

Some experts say that Bharteeya banks which lend or finance companies that are trading with Russian firms might be banned from operating in the US. Other experts say that the impact of these sanctions on Bharteeya firms would be minimal.

Total trade between Bharat and Russia is a little under USD 8 billion and the latter does not count among our major trade partners.

The Commonwealth Heads of Government meeting (CHOGM 2018) is being hosted by the UK Government this week.

Post- Brexit, UK is working hard to rebuild trade relations with members of the Commonwealth. In recent years Britain has concentrated on doing business within the EU and in many ways ignored the Commonwealth. 

The UK is also moving away from the rest of Europe and it will be interesting to see what the British Government has to offer to the rest of the world post-Brexit. CHOGM 2018 will in some way show the rest of the world the economic roadmap of post-Brexit Britain.

 All eyes on Modi   

The leader who will be most awaited and watched will be PM Modi. He has become a powerful world leader and well respected too. Once again the Bhartiya diaspora is preparing to give him a really warm welcome.

Interestingly, Mr. Modi will be the only leader with whom the British Premier will have bilateral talks on the sidelights of CHOGM2018. 

 Bhartiya is now the fastest growing economy in the World. The ease of doing business in Bhartiya has also improved by a big margin from 136th position to 103 making it amongst the top 100 countries to do business with.

This is a remarkable jump and reflects the major reforms that PM Modi and his government have implemented. This also reflects the fact that these reforms are being looked at as positive changes in the World.

The Bhartiya economy has further jumped in the World rankings and is now set to become the 5th biggest in the World, surpassing France and UK. 

PM Modi’s economic reforms and policies have aimed to improve the life of the average person by putting more money in his or her pocket. This makes sense because if the average person is happy and satisfied, the society will live in peace and work towards economic progress. In this context, it is notable that the Government recently introduced free medical care for the poor. This is unprecedented and never happened in the past. There is increasing attention and support provided to the farmers, whose plight was being ignored leading to many suicides.

Bold Reforms 

There are certain quarters who have been critical about Modi while quoting examples of excessive Hindutva, corruption etc. One can debate about these but no one can dispute the argument that the Bhartiya economy has now been brought on a stronger footing by the current Government. Moreover, it takes a lot of effort to implement major changes. Yet this government has demonstrated its capability to bring in bold reforms such as demonetization and GST.

Would you rather have a Government that does nothing or one that keeps on trying with new and bold reforms, even if some of these might not be as effective or perhaps slower in achieving the desired objective?

All this begs the question of whether one allows this Prime Minister to continue in 2019 or to take a risk of an alternative regime that may risk the future.

 In my past dealings with Mr. Modi, I have always seen him as a promoter of business and investment. I am now seeing a different dimension in him. He has clearly embarked on improving the worth of the average person of India. Today,

 22% of India’s population still lives below the poverty line but this figure is an improvement from the past. Nevertheless, poverty alleviation still remains a challenge. The economic reforms will work to improve the position and also help grow the economy further.

Opportunities galore! 

 For the UK, Bharat represents a huge market to target.

Whilst Bharat  and UK are both 3rd biggest investors in their respective countries, the trade statistics are rather disappointing.

UK exports to Bharat have remained static since 2000 whilst exports to the rest of EU have tripled in the same period. The UK has a lot of work to do but there also lies a great opportunity. The reforms and changes in Bharat over the years make it a near developed economy vastly different from 50 years ago when many UK Companies started to reduce their focus on India as they found it difficult to business there.

Time has come again to mark the needs of the over 300 million strong middle class of Bharat. It is this group which is earning a good income, creating wealth and aspiring to become international citizens with similar spending power.

There are also opportunities for UK companies to develop corporate transactions with Bhartiya companies who are looking for collaboration on technology, skills transfer, joint ventures for mutual benefit etc.

Bharat has now risen to a position where Britain can longer look down upon her as an economy that does not matter but a country that has great potential and must be addressed as an equal partner. Already, the rest of Europe has seen a tremendous increase in their exports to India. The UK has always had a strategic advantage with Bharat given the common language and the 1.3 m Bhartiya diaspora connection.

Time has come for Britain to view Bharat afresh as the latter is no more a country it was 30 years ago.

Subhash V Thakrar  

BCom, FCA, FRSA

Vice President, Past Chairman, London Chamber of Commerce

www.subhashvthakrar.com

Bharat, with an estimated population of 1.2 billion, had more than 900 million mobile subscribers in 2014. Of these, about 150 million were smartphone subscribers. As more and more people get connected to high-speed Internet, mostly via smartphones, it is estimated that there will be more than 400 million smartphone subscribers in Bharat by 2018. Bharat has already gained the attention of the world’s leading Internet companies. Bharat is Facebook’s second largest market in terms of monthly active users, the largest market for WhatsApp, the fastest growing market for Twitter, and so on. The implications on e-commerce are even more significant. The e-commerce market in Bharat, which is expected to cross $25 billion in 2015, has attracted billions of dollars in venture capital funding, giving rise to a second e-commerce boom in the country. Unlike the dot-com boom at the turn of the century, that was driven almost wholly on the illusory metrics of and “page-views”, with little to no real revenue behind those “clicks”, the story this time is different. The e-commerce boom in Bharat is a tide that is lifting many boats.

Bright, young minds have returned to Bharat in the recent past, bringing technology expertise gained from working for the best and biggest technology companies in the world. These people bring with them years of having worked and created successful products and solutions for their multinational employers. Lured partly by sky-high salaries that e-commerce companies are offering to lure these smart people back to their motherland, partly by the promise of creating the next big and world-class company out of Bharat, serving the Bharat’s consumer, these technologists are bringing back not only their skills, but also their experience of what it takes to build globally successful companies. These people will end up mentoring several other youngsters, both within and outside. The benefits are multi-faceted. The “brain-drain” that had afflicted Bharat for decades may finally be seeing an end – a slow end perhaps, but the light seems to be visible at the end of the tunnel.

Second, the explosive growth in e-commerce in Bharat has spurred the creation of ancillary segments that did not exist till a few years ago. Terms like “hyper-local” are used to describe these business models. E-commerce companies have been hiring delivery personnel – who complete the final, “last mile” of the delivery chain, pushing up salaries from basic, minimum levels. For example, Delhivery, an “express logistics services” company based out of Delhi NCR, has increased its delivery fleet strength to over 10,000 (article in Economic Times, May 19, 2015). These delivery persons can earn up to Rs 15,000 a month, and sometimes even more. Just as the BPO wave in Bharat a decade ago led to the explosive mushrooming of tax services in cities like Bengaluru, so has the e-commerce boom created a market for young people who otherwise may have been completely shut off from the employment market. A new class of young, urban, youth is entering the workforce.

The success of e-commerce is premised in no small measure on the quality of the logistics and supply-chain of the company. It is one thing to get a million page-views on a web site, and quite another to fulfil ten thousand, fifty thousand, or even a hundred thousand orders a day. Along with Internet speeds, customer expectations have also accelerated. Customer are no longer willing to accept week-long delays in their online order to be delivered. They now expect orders to be fulfilled and delivered in a couple of days – sometimes even within hours! Meeting these expectations requires that e-commerce companies invest in cutting-edge supply-chain and logistics software solutions that not only determine the precise sequence in which orders should be routed within a warehouse – from picking to packing and loading – but also predict demand of items with great accuracy. This helps cut down on idle inventory, saves on warehouse storage and pilferage costs, and helps avoid the dreaded “out-of-stock” messages for customers. Equally importantly, physical infrastructure is being created in the process. Massive warehouses are sprouting up in Bharat – some larger than a quarter million square feet – to meet this demand. Most are located on the outskirts of large towns like Mumbai, Bengaluru, Hyderabad, Delhi. Construction companies are raising the bar on their competencies, offering designs and construction of warehouses that match international standards. Transportation companies are scrambling to upgrade their fleets, equipping their drivers with handheld devices, and the trucks with smart sensors and GPS receivers. Entire industries in Bharat are undergoing a generational technological change as a result.

The e-commerce boom is therefore driving a quantum leap not witnessed before in Bharat’s domestic logistics industry, estimated at a little under $200 billion. Of this, third-party and fourth-party logistics companies are creating a modern, viable backbone for the shipping and tracking of goods across the length and breadth of the nation, and getting funded. Start-ups in this space have been funded to the tune of more than $300 million in 2015, according to data from VCCEdge.

All this is happening today, on the ground, even without taking into account the effect that the Bharat’s government’s Smart Cities Mission will have. These smart cities will have a pervasive technological underpinning as one of their foundation pillars, from e-governance and e-enabling citizen services, to smart transportation, to homes equipped with smart meters, to pervasive broadband connectivity. All this will further lower the barriers to pervasive e-commerce.

It is important, however, to temper this euphoria with a healthy dose of a reality-check. It is a matter of some satisfaction that in the list of the world’s largest startups based on market valuations, Bharat features Flipkart, SnapDeal, Ola Cabs, InMobi, and Zomato. Not one of them however has crossed a billion dollars in annual revenue, yet. In the list of the world’s largest e-commerce companies in 2015, China has three – JingDong Mall, Tencent, and Alibaba – in the top 10. Bharat has none. While JingDong had annual revenues of $17 billion, Flipkart – Bharat’s largest – had not yet crossed $1 billion. There are undeniable signs of a bubble in the Bharat’s e-commerce market. The deflation of the bubble will cause undeniable pain, and much pessimism from many quarters.

This time around, however, the e-commerce sector in Bharat is driving more than just the e-tail sector growth. It is proving to be the catalyst for entire sectors in the Bharat’s economy, and becoming a symbiotic part of the economy as a whole. From the beginning of recorded time to sometime in the eighteenth century, the Bharat’s economy was the largest in the world and a driver of world economic growth. The Bharat’s entrepreneur, always enterprising, rarely appreciated in a slowly-fading era of socialist mindsets, is now unshackled and riding the e-commerce wave to help drive a reversion to the historical mean.

-By Abhinav Agrawal

The great global bonfire that is capitalism, which provides much needed light and heat in an otherwise cold and dark world, in the form of money supply and trade requires entrepreneurship as its fuel. Entrepreneurship can be farmed from the human mind in regular consistent supply so long as the geopolitical climate is conducive to new ideas. For capitalism to work, entrepreneurship has to flourish. Therefore, that society which can harness the human capacity for entrepreneurship will fuel the largest bonfire, and thereby in turn will lighten the world in its own image. For a Dharmic capitalism, we will require a steady stream of Dharmic entrepreneurs

Entrepreneurship is not easy. Indeed, one can argue that entrepreneurship is epitomised by risk. Failure lurks at every corner. There are no set maps for success. The landscape is in constant flux, and the variables are often in the hands of the ‘devas’. With this risk, can come great reward, but all too often many entrepreneurs struggle for decades before accumulating any significant wealth, and in many cases all their sacrifice results in a fledgling flame at best, or downright disaster at worst.

Many have been traversing this fluid, dynamic road of entrepreneurship, and there are certainly ‘rules of thumb’ that people can espouse. These rules can help us navigate through uncertainty, allow us to seek support when we need it most, and to learn the right things at the right time, and quickly enough to get over obstacles.

#Rule 1 : Ideas are easy. But can you prove them?
The human psyche suffers from an egocentric bias. This bias in many ways has come from our
evolutionary past, the ability to take risks, has always been part of what it means to be human. To hunt, to fight, or even to protect requires a certain amount of overcompensation in our ability to feel as if we ‘know’. To know breeds confidence, and confidence is the hallmark of the risk taker. The risk taker knows he can succeed and she has a rationale for why they will succeed; but the truth often is that they are relying on an over-simplistic model, while over estimating their own ability, and under estimating the variables that can turn against them, on which they have no control. This is the egocentric bias. The entrepreneur has to overcome this bias by testing her idea.

#Rule 2 : Knowing that you don’t know
To test an idea, the entrepreneur has to extract it out of her mind, and communicate it to another. That other must prove test it. The entrepreneur must build a network of well-wishers around the idea; people who know things that you certainly do not; the idea must pass someone who understands bank finance and debt; someone who understands the regulatory framework surrounding one’s idea; someone who has direct experience in that market place; someone who understands risk capital and how to raise it; and so on. Only when these well-wishers all begin to believe in the idea as equally as you do, can you begin to trust your instinct that your idea is a good one.

#Rule 3 : Identify the skills you don’t have and attract talent around you
People surrounding the entrepreneur must be better skilled with more experience than the entrepreneur. Too many entrepreneurs lack the ability to recognise their own lack of skills and experience, and often attract people who will only exacerbate the entrepreneur’s egocentric bias. To attract talent requires charisma, confidence, and the ability to reward those who help you when risk is at its highest. Essentially, their experience ought to help the entrepreneur develop an abstract idea to a full fledge business plan, which is costed and modelled by people who will add credibility. Experience always mitigates risk.

#Rule 4 : Proving the idea and raising seed capital
Once the business plan is complete and the financial models stress tested, it’s time to prove the
idea. Raising seed capital is always expensive either as payback, or more likely in equity – accept it. Seed capital of course can be one’s own savings or financed by the ‘bank of mum and dad’ if one is lucky enough. The KPIs for any start-up will always be around managing cash flow, profitability, debt leverage, and the overall market conditions in which it operates. Often entrepreneurs begin to realise at this stage that the idea in practice and the idea in the business plan are two different things. This is where assumptions are tested, and often reconfigured. At this phase the entrepreneur cannot be attached to her abstraction, she must adapt to circumstance. The business plan will always be in a state of flux, and change. Narratives, and emphasis will continue to evolve. Ultimately proving an idea can take anything as little as 6 months to 5 years pending on the idea.

#Rule 5 : Raising capital for real growth
Capital. Capital. Capital. And what cost? This is where an idea has matured, been tested, is surrounded by experienced individuals, and the business can show real cash flow, profitability, and debt serviceability. The next big challenge is raising the capital for rapid expansion and taking opportunity of market conditions. There are two core ways in which capital can be raised – through debt or equity finance. Debt requires serviceability, and equity requires profitability as well as marketability for a planned exit in year 3, 4 or 5. Entrepreneurs often fail to recognise the severity if they get the financing wrong; the business can be taken off their hands or ends up working for the debt provider instead of the shareholders. If however, finance is acquired, then the deployment of capital is the next uncertainty to overcome. Ineffective deployment can lead to poor returns adding incremental pressure to get the next decision right. However, if deployment is done through consensus across the team, then the entrepreneur has the greatest chance of creating wealth for herself and for those who have bought into the idea.

An entrepreneur will face challenges from all sides, and most of the time they would not have been foreseen. The entrepreneur has to develop a certain mind-set, a psychology if you will; one that is forever elastic, adaptable, and cooperative on the whole with a competitive edge; confident but aware of skills she lacks and the experience she requires. Patience is another quality that is often underrated. The ability to inspire others, especially during the formative years of any business, to attract those that are more experienced and to manage their egos is key for any leader.

The journey is what the entrepreneur lives for, and the end for wealth or poverty is the price one pays for risk taking.

By – Sachin Nanda

Sachin Nanda born in Bharat; raised and educated in the United Kingdom. Sachin is the Founding Partner and Chief Strategy Officer of a Private Equity backed company operating in British healthcare. Sachin has a degree in Aerospace Engineering, a post graduate diploma in Christian & Islamic Theology, MA in Philosophy and his post graduate thesis in Political Philosophy, with a special focus on liberalism.

(Note: The above graphic does not contain deals made in Q2 2015 due to unavailability of data)

Sectoral breakup
As we examine the sector wise concentration of investments, Ecommerce takes more than half the total investments followed by Consumer Web, Payments and Mobile sectors. The dominant sectors in the ‘Others’ category include Healthcare, Education and Technology sectors apart from Analytics, Hardware and Energy Sectors

The investor interest in Ecommerce and other consumer focussed sectors is expected to stay put given the favourable demographic dividend, growing internet and mobile penetration among the Bharatiya population and other macro factors. In the near future, it is also expected that Healthcare,Education and Fin-Tech startups to attract more investments.

Future Outlook
The investor confidence is buoyant about Bharatiya early stage enterprises and it is expected that the seed and angel stage deals would go up in the coming months. Global investment houses stepped up their interest in early stage participation and the surge is expected to sustain. Time taken for a startup to achieve the coveted ‘Unicorn’ status has seen a decrease. The latest Unicorn Ola Cabs founded in 2011 took three years to get valued at One Billion dollars as against its Services counterparts like MuSigma (founded in 2004) which took around 9 years.

On the exit side, the recent acquisitions of Little Eye Labs (by Facebook), Zipdial (by Twitter) and Bookpad (by Yahoo) confirms the global interest in Bharatiya Technology enterprises. There have been around 190 Product acquisitions in the last 15 years out of which 28% have been from Global players. Bharatiya Startups have also started looking towards public issue as an exit route. After Justdial’s successful IPO in 2013, Infibeam filed its red herring prospectus and investors hope that the uptick in the macro-economic landscape hopefully opens up more avenues in the public markets too.

To end this in a personal note, my generation that graduated in the last decade had idolized NR Narayana Murthy and Sabeer Bhatia. The aspiring graduates today looking up to those Startup poster boys focussed on domestic markets startup poster boys like Sachin Bansal. It convinces me that the future of Bharat looks bright!