Regressive global trade
Donald Trump's high tariffs are challenging the ideals of open and free trade
Globalisation was at crossroads at the turn of the century due to the East Asian currency meltdown and the failure of the Seattle WTO ministerial in 1999. There was a UNCTAD meeting in Bangkok in the early part of 2000 to put globalisation back on track. At the concluding news conference of the UNCTAD meeting, a reporter observed that, as per Hindu philosophy, the only thing that is certain in this universe is death and it may have become a certainty for globalisation.
But pat came the reply from UNCTAD that globalisation was irreversible and that the world will become a unified global village one day. Immediately, thereafter, in 2001, Doha Development Round was launched at the WTO ministerial, providing a new lease of life to globalisation. More than a decade and a half later, the Doha Development round negotiations are yet to be completed and the DDA missed several deadlines. Globalisation is again at crossroads with increasing protectionism, regionalism and bilateral free trade agreements.
Globalisation has helped the manifold growth of world trade and several industrialised economies and emerging economies, including India, have benefitted greatly. China, in particular, has been the major gainer. With the global recession and jobless growth, globalisation is being challenged, particularly by industrialised nations, which is questioning the very concept of laissez-faire, totally open economy. Today, it is the industrialised nations which are dragging their feet, threatening the very concept of open and free trade.
US President Donald Trump is clearly spearheading this reversal in economic thinking that had the potential to derail the global economic recovery, which was fragile for nearly a decade due to the unprecedented recession.
Trump is championing the causes of domestic economic protection, instead of freedom. His anti-immigration policy is unwarranted and this is not going to help in reviving the US's sagging industrial growth. In fact, the better way would be to encourage domestic industries to become more competitive and efficient to take on the competition from China, Germany and the EU, Japan, South Korea, Canada and Mexico.
When India began the process of economic liberalisation, it was the so-called Bombay Club comprising the then leading Indian Industrialists who opposed reforms, particularly the new and open Industrial Policy, saying that India would be flooded with foreign goods and that the Indian industries will die. The fact was that they were afraid of competition as they were making undue profit with obsolete technology as the command economy protected their inefficiency. With reforms, some of those industries, which did not change and become competitive, had a natural death. But a new, vibrant and competitive industry came into being. The new generation industry has not only survived but also thrived and faced the challenges of competition. Even some of the public sector undertakings, which changed with the time, thrived in a competitive environment.
President Trump's latest announcement, imposing hefty tariffs on imported steel and aluminium — selectively, on some countries — to protect the US producers is certainly a regressive step.
Trump's trade war, though dangerous, is triggered by its huge trade deficit, particularly with China. This resulted in Trump announcing a 25 per cent hike in import duty on steel and 10 per cent on aluminium. US global trade is valued at $5 trillion and the trade deficit is over $500 billion, which is mostly with China. Economists fear that this steep hike in import tariff could damage the US economy by raising the costs for US manufacturers and consumers while prompting its trading partners to impose their own levies on US exporters. With other countries planning retaliatory measures, the prospect of a global trade war looms large.
Of course, Trump has exempted from this tariff hike the US neighbouring countries like Canada and Mexico, which account for nearly 10 million tonnes of steel exports to the US, Brazil, which accounts for almost five million tonnes of exports to the US which might be affected.
India exports just 0.85 million tonnes of steel to the US. The United States accounts just 2 per cent of India's steel exports and 6 per cent of total aluminium exports. Although the short-to-medium term impact could be minimum, India could witness dumping by US-hit exporters like South Korea and Russia. China too could resort to dumping and this may come at a time when the Indian steel industry is in the process of recovery after a few years of slowdown. Also, the possible diversion of 6.4 million tonnes of steel and 3.7 million tonnes of aluminium to the global market will drive down prices, affecting the domestic realisation of homegrown producers.
In sum, Trump's action is not a good move as this would put global trade and economy in jeopardy besides detrimentally impacting globalisation, which was slowly taking firm root. A free and open economy is any day better than a restrictive economy and protectionism. The past experience clearly suggests that restrictive practices did not help any economy in the medium to the long term. One only hopes that Trump realises his mistake and mends his ways for the benefit of the US as well as global industry. IPA
(The views expressed are strictly personal)