Donald Trump tariffs threatens global economy with trade war: India, too, will bear brunt of 'America First' policy

A tariff regime to support US President Donald Trump’s ‘America first’ policy was always a key part of his agenda. In his first year in office, Trump did not take it up too seriously. By the end of his first year in office he has announced a slew of tariffs that threatens the global economy with a trade war.

Let’s start with a full list before coming to the Indian case. There is steel and aluminium, which is going to affect mainly the European Union (EU), Mexico and Canada, of the latter two more in a bit.

Tariffs have also been imposed on washing machines and solar panels. Duties on motorbike imports from India were flayed, which attempted to placate Trump’s ire by announcing that duties would be halved from the existing 100 percent. Trump’s response was typically sarcastic. But there were other issues with New Delhi, of which more in a while.

As far as Mexico and Canada are concerned, Trump was prepared to eliminate the duties, if the two countries agreed a comprehensive free-trade agreement under the North Atlantic Free Trade Agreement. Both countries pushed when it came to shove, which goes at least partly to show that Trump’s eccentric administration does not have the heft it imagines it has. This is partially because there is a strong free-trade lobby opposed to the president. One of its members, the president’s economic advisor Gary Cohn, resigned on Wednesday, apparently over disagreements with Trump’s trade policies; he was reputed to be virtually the second most influential man in the White House.

 Donald Trump tariffs threatens global economy with trade war: India, too, will bear brunt of America First policy

File image of Donald Trump. AP

As far as washing machines and solar panels are concerned, US consumers will take a big hit as the price of washing machines and electricity will go up. It has been clearly demonstrated that US manufacturers can’t fill the gap at all, far less at prices prevailing in the free-trade scenario. China and South Korea are playing a waiting game, but it is a cinch they will do something about this. But the big player is the EU. It has already signalled retaliation – a trade war, in other words – by threatening tariffs on ‘iconic’ US products: Levi’s jeans, bourbon whiskey and motorbikes, including the now contentious Harley Davidson. In addition, it could target smaller products (in terms of volume of trade), including steel, T-shirts, bed linen, chewing tobacco, cranberries, and orange juice.

The point here is not necessarily the volumes involved (or for that matter, what US citizens pay; they will, which is why senior Republicans are opposed to the tariffs, including Paul D Ryan, the House speaker). The point is how should countries react to this destabilisation of the established global economy.

For instance, what should India do? It can take the matter lightly – after all, it’s just a matter of some tariff on a motorbike; and, New Delhi’s ‘special relationship’ is more important than trying to sort out trade wars in which it is not really involved. Wrong. India is involved because this is not just a matter of a few Harleys.

Tension between the two special friends has been escalating on any number of issues since Trump came to power, especially over trade issues, with US companies and Congress pushing for cutting tariffs. “It is important that India make greater efforts to lower barriers to trade, including tariff and non-tariff barriers, which will lower prices to consumers, promote development of value chains in India,” a US state department official has told Reuters.

The Trump administration has been threatening that it will act against countries which do not improve the trade deficit with the US. In 2017, the US had a trade deficit of $22.9 billion with India. If Trump acts to ‘correct these imbalances’, which well he might, given his domestic policy and political agenda, and, of course, his core constituencies, the Indian economy may suddenly find itself in big trouble. It won’t be a matter of exporting a few two-wheelers anymore. Strategically, therefore, India must make common cause with whichever country or bloc that is going to take on the US – China, the EU, whoever.

It is relevant here to point out that negotiations on the Doha round of the World Trade Organization (WTO) continued for almost 14 years, with India refusing to make concessions that would endanger its agricultural sector or diminish the food and income security of its farmers, until the present government caved in at Nairobi in December 2015. In that decade and a half, New Delhi’s ‘special relationship’ flourished rather floundered.

Trump is a different kind of president – unpredictable and often vindictive, but that is no reason for India to take a pusillanimous stand. The worst is likely to happen anyway, hugs and telephone calls notwithstanding.

In other words, if the impending trade war does happen, India will have to take a clear stand – and there is little doubt with whom it needs to throw in its lot.

Updated Date: Mar 08, 2018 12:43:47 IST