06 Apr 2018 21:25 IST

Global trading system at the crossroads

US China trade spat war steel soyabeans BL on Campus

With the US-China trade war looming, consensus in the world trade regime is under serious threat

After US President Donald Trump put on his boxing gloves earlier this week and slapped 25 per cent import duty on 1,333 Chinese products entering the US markets, it was China’s turn to hit back. Pulling no punches, it imposed a 25 per cent import duty hike on 106 US exports, which include whisky, soyabean, cars and orange juice. China’s move to impose duty on soyabeans will hurt US farmers, as its imports include nearly 60 per cent of the American soyabean crop. China has been smart enough to target American farmers, who are Trump’s core constituency.

China has also imposed tariffs on US pork exports. This will hit the pork industry as China is the third largest consumer of American pork.

It all started in early March, when Trump decided to impose a 25 per cent tariff on steel imports and a 10 per cent tariff on aluminium imports, as he had been threatening for a long time. During the signing of the document in the White House, the canny Trump made sure there were US steel workers present, as that made for a terrific photo-op, burnishing his pro-worker credentials.

China, the target

The steel and aluminium tariffs were imposed citing ‘security concerns’ and some countries were exempt from it which included Mexico, Canada and the EU. Trump was clearly targeting China, which he has consistently blamed for the US’ economic woes over the last decade.

From the time he came to power, Trump has been threatening to impose tariffs on Chinese imports. The huge trade deficit that US has against China became a major talking point during the last US elections.

China’s humungous appetite for steel, cement and coal came to an end after the Beijing Olympics, which had fuelled frenzied building activity. After that, China started pushing its steel into the global markets with regular cries of dumping being heard all across the world. Much of the metal is exported to Asian markets with Indian steelmakers too charging China with dumping. In fact, steel companies in India have had a long-standing feud with the country’s ore exporters, who are accused of exporting to China and fuelling that country’s manufacturing capacity at the cost of the Indian industry.

With the US-China trade war looming, the world trade regime lies in a shambles. The cosy consensus over the benefits of falling tariffs and growing volume of trade between nations is crumbling, with the world’s largest economy threatening to dismantle it completely.

The WTO

In the late 1980s and early 1990s countries like India and China opened up their markets to foreign investments and goods after being constantly lectured about the benefits of an open economy by the developed world and multilateral agencies like the World Bank and IMF. The GATT (General Agreement on Trade and Tariffs) made way for the World Trade Organisation, which was to usher in a rule-based, open, world trade regime with a dispute settlement mechanism in place.

The WTO, however, ran into to trouble during its very first major meeting at Seattle in late 1999. NGOs, civil society groups and activists took to the streets protesting against what they perceived was an unfair and anti-poor world trading system. The protests turned violent and parts of Seattle resembled a war zone. The protests really shook the world leaders gathered there. But despite this jolt there was still a great deal of support for an open global trading system among the leaders of most nations.

Despite this consensus, the WTO has always had a rough journey, as witnessed by the wrangling over the Doha development round. Trump, to be fair to him, isn’t the first President to put a spoke in the WTO’s wheels. Before him, both Bush and Obama did their bit by running to the ground the Doha Round, which the developed world was keen on. It was under the Bush and Obama regimes that the US, and even the EU, kept shifting the goalposts by bringing in new issues such as e-commerce and trade facilitation, issues which the developing nations were reluctant to take up before the earlier issues of food stock-holding and agriculture subsidies were settled.

Trump, in that sense, is merely picking up from where Bush and Obama left off. The US administration is also actively blocking the appointments at the WTO dispute settlement body, which is clearly hurting the interests of countries such as India and China.

Push for a more open system

So the world trading system is at a crossroads today. With the collapse of the Trans-Pacific Partnership (TPP) — a mega trade deal between several Pacific nations including the US, China, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru — and the stand-off over the Regional Comprehensive Economic Partnership (RCEP) that India is negotiating with the 10-member Asean plus China, Japan, South Korea, Australia and New Zealand, the future of the global trading system looks gloomy.

Ironically, today, it is the developing world that is pushing for a more open global trading system whereas the developed world, especially the US, is erecting trade walls and turning to protectionism. This is a complete role reversal of the situation that prevailed 30 years ago.

It will be interesting to see how the world pulls itself out of this mess and what the way forward is.

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