Turbulence in global trade
US along with other developed nations have allowed the developing nations to impose higher tariffs to protect their economies, especially the indigenous industries from being swamped away by flurry of cheaper foreign goods.
- Global trade and commerce may face an unprecedented
turbulence from April 2 onwards, if the United States goes ahead with its plan
to impose reciprocal tariffs disregarding its earlier commitments made during
the GATT agreement. In the said agreement, the US along with other developed
nations have allowed the developing nations to impose higher tariffs to protect
their economies, especially the indigenous industries from being swamped away
by flurry of cheaper foreign goods. But now after years of signing the accord,
the US’ decision to go for reciprocal tariffs goes completely against the very
spirit of the agreement, which set the governing rules for world trade in the
new millennium providing a much-needed fillip to it that was nearing
stagnation. Thus, it is quite strange to hear from none other than the US
President Donald Trump that “whatever they tax us, we will tax them. If they
use non-monetary tariffs to keep us out of their market, we will use
non-monetary tariffs to keep them out of our market.” From his remarks on
tariffs, it seems that the US President is unaware regarding the functioning of
world trade. Otherwise, he wouldn’t have weaponised tariffs to establish his
country’s hegemony over the world as a full-fledged tariff war will not only harm
other countries, it will also harm the US equally badly as stated by David
Richardo’s in his ‘theory of comparative cost advantage’. The present US
administration may not care to honour the theory, but the fact remains that
till now global trade has been governed by comparative cost advantage, rather
than absolute cost advantage. So, it will be beneficial for every nation, if
the US reconsiders its decision of imposing reciprocal tariffs.
- Along with other nations of the world, India too will suffer
if there is no change in Trump’s proposed policy to be implemented in a couple
of weeks from now as the US has become India’s biggest trade partner. It is for
the Trump administration to realise that it is not advisable to specialise in
all the goods that it produces at a cheaper rate than India, leaving India with
nothing to export. Rather to the best of the country’s interest, the US should
specialise on the goods that it can produce at a low cost and allow India to
reciprocate in the same manner, so that trade between the two sides may
flourish and both of them can be benefitted. This is why, instead of causing
disruptions to world trade, the US should enter into a dialogue with all its
trade partners before deciding on imposing reciprocal tariffs and may enter
into a bilateral trade agreement (BTA), based on reality rather than showing
any kind of highhandedness. For example, India has already made provisions to
lower tariffs for goods like luxury cars, electronics, solar cells and
chemicals among others that may provide greater access for US goods in the
Indian market. So, the need of the hour is to carry out a thorough reality
check for the sake of global prosperity, instead of implementing a policy which
helps none.
