India may well be drawing closer to the US when it comes to defence, but trade is something else. For all the photo-op bonhomie displayed with Prime Minister Narendra Modi during their meetings, President Trump has not hesitated to take a swipe at India over ‘trade barriers’. At the G-7 summit in Quebec recently, while lambasting host Canada and other developed nations, President Trump did not forget to take a pot shot at India for ‘charging 100 percent tariff’ on some US products, Harley Davidson bikes for instance. “This isn’t just G7. I mean, we have India, where some of the tariffs are 100%. A hundred percent. And we charge nothing. We can’t do that,” he had expostulated. Well, the gloves are off with the Trump administration having already imposed stiff tariff on some steel and aluminium products from India totalling $241 million. India has now hit back with higher tariffs on 29 American goods ranging from pulses to diagnostic reagents to steel. New Delhi made its intentions clear last week when it submitted to the World Trade Organisation (WTO) a list of US products on which it proposed to raise customs duty by up to 50 percent. Hard nosed bargainer that he is known to be, Trump has been going after the likes of China and Mexico as well as European Union and G-7 allies, demanding that they reduce tariffs, end subsidies to domestic industries and buy more American products. Beijing last month struck a deal with the Trump administration to reduce the $ 375 billion surplus it enjoys in bilateral trade by ‘significantly increasing’ its purchase of American goods and services. But matters turned sour soon thereafter with Trump last week ordering 25 percent import taxes on Chinese goods worth $50 billion and Beijing returning the compliment in equal measure; Trump is now reportedly mulling more tariffs on a larger set of Chinese goods worth $200 billion. Clearly this trade war may soon escalate, as it is likely with other major countries the US does business with. The European Union has already slapped retaliatory tariffs on American goods, so has Canada, while Japan and Mexico are threatening to follow suit. All such tit-for-tat action and rising protectionism has set alarm bells ringing in WTO, with economists and bankers warning of damage to business confidence and shrinking multilateral trade. There is much heartburn in leading developing countries like China, Mexico and India over the US now reverting to protectionism which once helped American industries grow strong, even as Washington insists on other countries keeping their markets open. But international trade is still a jungle where the mighty rule, while the weak look for coalitions to safeguard their interests. Globalisation has helped India run a trade surplus with the US ($21 billion in 2017-18), as it has China, which Washington does not like one little bit. The WTO could help, but US under Trump has been ignoring the multilateral trading body in its pursuit of bilateral trading deals in which it can extract the most favourable terms. China has so far cleverly targeted US products so as to hurt Trump’s core white collar voter base, while cultivating US business lobbies who have outsourced operations to China or are dependent on Chinese imports to finish their own products. If not the WTO, it could be such American quarters with vested interests that may induce Trump to pull back. Be as it may, much depends on how a Modi-led India plays its cards in an election year, for its economy might be impacted by a downturn in global trade that grew 4.7 percent last year. A full-fledged trade war could end up hurting global production, pull down investment, raise prices and thereby interest rates, and above all, create huge uncertainty.
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February 19, 2019
Dr BK Mukhopadhyay (A noted management economist and an international commentator on business and economic affairs. He may be reached at m...