Trade war fallout

A trade war occurs when one country retaliates againstanother by raising import tariffs or placing other restrictions on the opposingcountry’s imports. A tariff is a tax or duty imposed on the goods imported intoa nation. In a global economy, a trade war can become very damaging to theconsumers and businesses of both nations, and the contagion can grow to affectmany aspects of both economies (Investopedia). Many consider trade wars to bean outgrowth of the phenomenon of protectionism, wherein a series of governmentactions and policies restrict international trade – these are enforced with theintent of shielding domestic businesses from foreign competition as well as tobalance trade deficits.

Protectionism and, by extension, trade wars are the clearestbarriers to free trade such that they do not allow the market to take its owncourse and determine prices. A trade war that begins in one sector can grow toaffect other sectors. Likewise, a trade war that begins between two countriescan affect other countries not initially involved in the trade war. In additionto tariffs, trade wars can be implemented by placing a cap on import quotas,setting clear product standards, or implementing government subsidies forprocesses to deter outsourcing.

   

To analyse and see what a trade war really looks like, oneneed 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 wasgoing through its cycle of highs and lows, India was largely a disinterestedbystander with the only consequential fear of slower global trade while the twolargest economies in the world delivered threats and counter-threats of tariffhikes. However, over the last month or so, America’s reservations with globaltrade have expanded across Asia in general, and India in particular. Over theyears, the Indian economy has seen a recurrent mention in Trump’s speeches ontrade highlighting India’s high tariffs. But matters rose to a crescendo when afew weeks ago the US terminated India’s designation as a beneficiary developingcountry under the General System of Preferences (GSP) Programme. This came as asetback to the newly elected Modi government, which had made tireless effortsto make inroads into the Trump administration in its first term. Noteworthyhere is that both the USA and India are currently headed by a Rightistgovernment, which is generally known to support the free market. However, bothModi and Trump rose to power via the trampoline called populism – this populismmandated the need for protectionism, and hence the resultant trade war. Withboth India and the United States facing an immense trade deficit, it was onlylikely both would try to boost exports and limit imports. America First, Makein India and the like are the projects that have resulted in the stand-still weface today, with one counter-attack of tariffs over another.

The now ongoing trade war between India and the US seemedunlikely to a lot of people because in the list of nations that have a tradesurplus with America, India lies really low. So, it didn’t seem likely that theUS would import tariffs on India. Additionally, Trump knew that he enjoyed afair popularity in India, compared to the rest of the world. Consider howvideos of Indians celebrating Trump’s Birthday went quite viral in the US. Alsoaccording to a PEW poll, Trump enjoys higher approval ratings in India thanmost major allies of the United States. So, he would not want to ruin thegoodwill by starting a unnecessary trade war. That’s not all –  Modi is known outside of India as a rightleaning Hindu Nationalist leader. Trump seems to be appreciative of nationalistleaders such as Netanyahu of Israel, Orban of Hungary, Duterte of Philippines.Trump perceived  Modi as a leader whoalso has the grit to stand tall against common adversary, China. He seeshimself as an anti-globalist, and takes an acute dislike to multilateralagreements such as NATO, EU, NAFTA and TTIP etc. India can be a great ally tofulfill his agenda. However, it seems like the two countries got lost along theway of building a world order they both agree with. The result is the ongoingmuddle.

The most vivid ramification of the trade war is that in thewar against China, the common adversary, both lost an ally and a firm footingas the two warring nations are unlikely to unite over the issue. This comes asa relief to China, even as it undermines Indian power in disciplining  China. The US had long lost that power whenit plunged into its own trade war with China. Secondly, the trade war hasproven that India is not a country that will cower and give in to the repeatedeconomic assaults of the United States. Perhaps the Indian leadership haslearned from the US’s mistreatment of Mexico post the agreement of USMCA aswell as the endless US-China trade war that America is not to be trusted tocome to a decent deal or agreement. So, India is better off retaliating for theattacks and tariffs right from the start. Notwithstanding India’s counterattacks, the two countries’ leadership has agreed to meet up in order to arriveat a conclusion to this economic cycle of offence-defence very soon. Indiareally is willing to make a deal with America, for it risks losing a very bigmarker after all alongside a bearer of both capital and technical know- toachieve the Made-in-India ambition of cutting down imports. In this game, Indiais looking like the smart player, for it intends to make the most out of itsgeopolitical strength in the Eurasia continent – Modi is exploring the optionof a possible trilateral collaboration with China and Russia. This will giveIndia more leverage for when it really will have to negotiate with the UnitedStates.

Seeing as India is unwilling to go without a fight, the ballseems to be in the court of the United States . Will it halt its threats, orwill it try and work towards the semblance of normalcy so the two countries maygo back to being allies and bearing avid contempt for China? I guess we willjust have to follow the trade war news like we do the sports scores. Fairfortune!

(The author is an Honours student at the Department ofEnglish Literature, Delhi University)

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