High Tariffs of Trump Regressive to Global Trade: Open and Free Trade Being Challenged

Globalisation was at crossroads at the turn of the century due to East Asian currency meltdown and the failure of 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 has it become a certainty for globalisation.

But pat came the reply from UNCTAD that globalisation was irreversible and that the world will become one global village one day. Immediately thereafter in 2001, Doha Development Round was launched at the WTO ministerial, providing new lease of life to globalization. More than a decade and a half later, Doha Development round negotiations are yet to be completed and DDA missed several deadlines. Globalisation is again at crossroads with increasing protectionism, regionalism, and bilateral free trade agreements.

Globalisation has helped world trade to grow manifold and several industrialised economies and emerging economies, including India, have greatly benefitted. China, in particular, is 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.

The U.S. 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 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 EU, Japan, South Korea, Canada, and Mexico.

When India began economic liberalisation process, it was the so-called Bombay Club comprising the then leading Indian Industrialists who opposed reforms, particularly the new and open industrial policy, saying India would be flooded with foreign goods and that Indian industry will die. The fact was they were afraid of competition as they were making an 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 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 aluminum — selectively, in some countries — to protect 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 percent hike in import duty on steel and 10 percent in aluminum. U.S 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 U.S economy by raising costs for U.S manufacturers and consumers while prompting its trading partners to impose their own levies on U.S. 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 U.S neighbouring countries like Canada and Mexico, which account for nearly 10 million tonnes of steel exports to U.S. Brazil, which accounts for almost 5 million tones exports to the US might be affected.

India exports just 0.85 million tonnes of steel to U.S. United States accounts just 2 percent of India’s steel exports and 6 percent of total aluminum exports. Although the short-to-medium term impact could be minimum, India could witness dumping by U.S-hit exporters like South Korea and Russia. China too could resort to dumping and this may come at a time when 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 tones of aluminum 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 to jeopardy besides hitting hard globalisation, which was slowly taking firm root. Free and open economy is any day better than restrictive economy and protectionism. The past experience clearly suggests that restrictive practices did not help any economy in the medium to long-term. One only hopes Trump realises his mistake and mends his ways for the benefit of the U.S. as well as global industry.