It is now clear that China, EU, Turkey and India have decided to take on the US, as the latter ratchets up its protectionist practices. Those who believed earlier this year that the Trump administration’s belligerent trade rhetoric was merely a ‘deal-making’ strategy against powerful trade partners, have probably been proved wrong. Matters have escalated rapidly over the last month, with China and EU rolling out their list of retaliatory tariffs and the US expanding the scope of its levies against China in particular. India has been hurt not just by the imposts on steel and aluminum, but much more so by the crackdown on US visa holders, many of them service sector professionals. India has retaliated by raising levies on 29 US products, including almonds, apples, lentils, shrimp, phosphoric acid and a range of metallic items — which will come into force from August 4. On Tuesday, China fired a strategic salvo of sorts; in an attempt to assume leadership of an inchoate anti-US trade grouping, it has decided to relax tariffs on a range of products such as soyabean, chemicals, farm products, medicines, clothing and, not the least, steel and aluminum products for the benefit of India and Asia-Pacific countries.
These are turbulent times. While the US will come under increased pressure to play by the trade rule-book rather than cock a snook at it, its economy is strong enough to absorb some of this pushback for a while. The question is who will blink first: China or the US. China too is recalibrating its economy away from being an export-oriented one, its trade-to-GDP ratio declining steadily. Meanwhile, Asean (12 per cent), Japan (6 per cent), South Korea (4.5 per cent) and India (3 per cent) put together account for a greater share of its exports than its principal trading partner, the US (19 per cent). China’s latest move is perhaps a strategic attempt to enhance trade engagement with Asia.
India needs to adopt a studied, holistic approach. It has already raised tariffs on a range of products in its last Budget, in keeping with its Make in India plan. However, its negotiations at the RCEP are marked by a willingness to reduce tariffs to zero on most lines. It must also be cognisant of the WTO rules. The MFN principle has come under stress with essentially bilateral trade-wars gaining ground. Retaliation against some form of protectionist action is permitted as an exemption to the non-discriminatory MFN principle. China’s concessions, an apparently blatant departure from MFN, may be justified under some technical ground — such as the Global System of Trade Preferences, wherein developing countries can grant tariff concessions to each other in certain circumstances. But in the final analysis, WTO principles must gain centrestage. In a free-for-all slugfest, it is the powerful countries that will emerge less unscathed. A fall in world trade will hurt Indian livelihoods.