The USA has always endeavoured to promote free trade across the globe. The GATT and WTO bear testimony to this fact. However, in a recent turn of events, the USA has been condemning the WTO and labelled the institution as “single-worst trade deal ever made”. The irony here being, USA is its main architecture.
Trump’s presidency was accompanied by several trade bangs. The reason for these being the imbalance in bilateral trade between the US and several its trading partners which include China, the EU, Mexico, and India; to name a few. To maintain the previously existing ‘status quo’, Trump has come down with a heavy hand on these countries with aggressive trade measures.
The administration has declared imposition of tariffs on washing machines and solar panels. Trump has invoked, “national security to justify a 25% tariff on steel and 10% on aluminium imports”. (FYI this includes India too). Washington filed a complaint at the WTO over several subsidy programmes in India including Merchandise Exports from India Scheme, the Export Oriented Units Scheme, Special Economic Zones etc.
The trade war with China began when the US began a unilateral trade action because of China’s practice of practice of asking a US investor in China to transfer technology to local enterprises. The Trump administration invoked Section 301 of the US Trade Act of 1974. The path taken shows a contempt for the WTO and the matter should have been first raised against China and then should have obtained an authorisation for the verdict if it was favourable.
Americas’ measures show that Trump is bent on replacing the rules-based trade order with “America first” framework. His previous measures have also made it aptly clear to the world that he prefers bilateral trade deals over multi-lateral trade agreement and hence the withdrawal from the TPP happened.
The president used the tariffs to reset the bargaining balance. Along with this, he has created a new negotiating objective; ‘tariff exemption’. In this he has invited world leaders to ask for favours, linking it to other negotiations say NAFTA, closely based on his personal relationships.
Predictably, almost all the major trading partners of the US—most notably, the EU and China—have responded with retaliatory measures
With these retaliatory measures, it has been noted that not only have the EU and China responded with retaliatory countermeasures but the consumers in the USA are unhappy because of the rising prices of the imports, manufacturers are crossed for losing access to cheaper inputs and disruption of supply chains.
Trump has also disrupted global supply chains and trade by imposing sanctions against Iran and stiffening those against Russia and North Korea and began the Trade war with China.
This needs to be checked as all major economies of the world are plugged into this China centered pipeline and will disrupt global supply chains.
The president used the tariffs to reset the bargaining balance. Having created a new negotiating objective—tariff exemption—he invited the leaders of the world to ask for a favour, which he linked to other negotiations (like Nafta) and granted, or not, based on his personal relationships.
Notwithstanding the risk, for India, there is a major takeaway from Trump’s approach; his venture where he seeks to formulate trade success based on relationships rather than rules. The Indian prime minister has devoted his energy in 2018 in building up personal relationship with Trump. This can be measured in hugs and the fact that Trump readily accepted an invitation to visit India. The only litmus test that could be threatening this chemistry would be when the American president asks Modi his plans to even out the $30 billion trade imbalance between the countries.