A trade war occurs when one country retaliates against another by raising import tariffs or placing other restrictions on the opposing country’s imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations, and the contagion can grow to affect many aspects of both economies (Investopedia). Many consider trade wars to be an outgrowth of the phenomenon of protectionism, wherein a series of government actions and policies restrict international trade – these are enforced with the intent of shielding domestic businesses from foreign competition as well as to balance trade deficits.
Protectionism and, by extension, trade wars are the clearest barriers to free trade such that they do not allow the market to take its own course and determine prices. A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. In addition to tariffs, trade wars can be implemented by placing a cap on import quotas, setting clear product standards, or implementing government subsidies for processes to deter outsourcing.
To analyse and see what a trade war really looks like, one need not look too far. The ongoing India-USA trade war has the two countries’ leaders on their toes. Earlier this year, when the USA-China trade war was going through its cycle of highs and lows, India was largely a disinterested bystander with the only consequential fear of slower global trade while the two largest economies in the world delivered threats and counter-threats of tariff hikes. However, over the last month or so, America’s reservations with global trade have expanded across Asia in general, and India in particular. Over the years, the Indian economy has seen a recurrent mention in Trump’s speeches on trade highlighting India’s high tariffs. But matters rose to a crescendo when a few weeks ago the US terminated India’s designation as a beneficiary developing country under the General System of Preferences (GSP) Programme. This came as a setback to the newly elected Modi government, which had made tireless efforts to make inroads into the Trump administration in its first term. Noteworthy here is that both the USA and India are currently headed by a Rightist government, which is generally known to support the free market. However, both Modi and Trump rose to power via the trampoline called populism – this populism mandated the need for protectionism, and hence the resultant trade war. With both India and the United States facing an immense trade deficit, it was only likely both would try to boost exports and limit imports. America First, Make in India and the like are the projects that have resulted in the stand-still we face today, with one counter-attack of tariffs over another.
The now ongoing trade war between India and the US seemed unlikely to a lot of people because in the list of nations that have a trade surplus with America, India lies really low. So, it didn’t seem likely that the US would import tariffs on India. Additionally, Trump knew that he enjoyed a fair popularity in India, compared to the rest of the world. Consider how videos of Indians celebrating Trump’s Birthday went quite viral in the US. Also according to a PEW poll, Trump enjoys higher approval ratings in India than most major allies of the United States. So, he would not want to ruin the goodwill by starting a unnecessary trade war. That’s not all – Modi is known outside of India as a right leaning Hindu Nationalist leader. Trump seems to be appreciative of nationalist leaders such as Netanyahu of Israel, Orban of Hungary, Duterte of Philippines. Trump perceived Modi as a leader who also has the grit to stand tall against common adversary, China. He sees himself as an anti-globalist, and takes an acute dislike to multilateral agreements such as NATO, EU, NAFTA and TTIP etc. India can be a great ally to fulfill his agenda. However, it seems like the two countries got lost along the way of building a world order they both agree with. The result is the ongoing muddle.
The most vivid ramification of the trade war is that in the war against China, the common adversary, both lost an ally and a firm footing as the two warring nations are unlikely to unite over the issue. This comes as a relief to China, even as it undermines Indian power in disciplining China. The US had long lost that power when it plunged into its own trade war with China. Secondly, the trade war has proven that India is not a country that will cower and give in to the repeated economic assaults of the United States. Perhaps the Indian leadership has learned from the US’s mistreatment of Mexico post the agreement of USMCA as well as the endless US-China trade war that America is not to be trusted to come to a decent deal or agreement. So, India is better off retaliating for the attacks and tariffs right from the start. Notwithstanding India’s counter attacks, the two countries’ leadership has agreed to meet up in order to arrive at a conclusion to this economic cycle of offence-defence very soon. India really is willing to make a deal with America, for it risks losing a very big marker after all alongside a bearer of both capital and technical know- to achieve the Made-in-India ambition of cutting down imports. In this game, India is looking like the smart player, for it intends to make the most out of its geopolitical strength in the Eurasia continent – Modi is exploring the option of a possible trilateral collaboration with China and Russia. This will give India more leverage for when it really will have to negotiate with the United States.
Seeing as India is unwilling to go without a fight, the ball seems to be in the court of the United States . Will it halt its threats, or will it try and work towards the semblance of normalcy so the two countries may go back to being allies and bearing avid contempt for China? I guess we will just have to follow the trade war news like we do the sports scores. Fair fortune!
(The author is an Honours student at the Department of English Literature, Delhi University)