By Sunanda Natrajan
Just last week, US President Donald Trump imposed strict tariffs on steel and aluminium imports into the country. After meeting more than a dozen aluminium and steel executives in the White House on Thursday, Trump declared that he would be signing tariffs of 25% on imported steel and 10% on imported aluminium, respectively. This move comes after the President voiced concerns about how dumping of cheap, imported steel and aluminium is ruining American industries and taking away American jobs. After increasing the duties on solar panels and washing machines in January to the tune of 30% and 20-25% respectively, the President has decided to be open about his fearlessness in the face of a potential trade war. He tweeted “When a country (USA) is losing many billions of dollars in trade with virtually every country it does business with, trade wars are good and easy to win. Example, when we are down $100 billion with a certain country and they get cute, dont trade anymore-we win big. Its easy!“
Trump’s trade strategy
Right after he assumed office in 2016, Donald Trump declared that USA would be pulling out of the Trans-Pacific Partnership (TPP). Calling it as a great thing for the American worker, he signed an executive order that resulted in the US ending its part in the major 12-nation trade deal. TPP was one of the significant feats of the Obama administration that aimed to remove all kinds of tariffs and non-trade barriers as well as established unifying regulations on goods and services among the USA and 11 other nations that lie on the rim of the Pacific Ocean. Critics of the deal stated that such treaties put business interests before American jobs and essentially gave private companies the authority to sue national governments in cases of breach.
Instead, Trump initiated the renegotiation process for bringing North American Free Trade Agreement back on the table. Even though he is not in favour of multilateral treaties, one of the promises during Trumps campaign was to rewrite the trade rules. Therefore, he is seeking to transform the NAFTA where he gets assurances that the member nations do not manipulate exchange rates in a bid to make their goods cheaper and gain an unfair advantage.
The possibility of a global trade war
The recent announcements by the US government regarding trade deals and international relations have sparked an imminent threat of a trade war, one that could be devastating for the global economy in unthinkable ways. When the Indian FM Arun Jaitley announced a hike in the import duties for 45+ commodity categories, Trump retaliated by stating that the US would impose 100% duty on Harley Davidson motorcycles. However, given the recent imposition of duties on aluminium and steel imports, it might not have an adverse effect on Indian producers because the US is not a major export market for the country. In 2017, Indian steel exports to the US accounted for only 5% of the total. South Korea and Malaysia account for 38% and 14% of Indian aluminium exports and therefore, this 10% duty will not have a major impact in the short run.
On the other hand, China can be another obstacle. In 2017, USA had a trade deficit of 375 billion USD with China, a big importer of American soybean, Boeing crafts. China also has 1.3 trillion USD of US bonds in its foreign exchange reserves. It has already warned the US of a tit-for-tat situation but now that Trump is intent on a war, China doesnt seem to be holding back either. Surprisingly enough, China has proven to be just as strong as the States. If it plans to dump all of its dollar bonds into the market and stop imports, it will have to pay a higher price to alternative suppliers. But it could be disastrous for the dollar and US economy as a whole.
US and China trade war: What will India do?
To put it into perspective, Donald Trump is not just against China but all US exporters, primarily because he is of the belief that countries have taken advantage of the US economy for far too long. Therefore, resorting to radical protectionism seems like the way the country is going to operate for the next 4 years. And in the face of a US-China trade war, India cannot afford to take any risks. Everyone knows that fighting the US single-handedly is difficult and hence, India should strategically try and nurture its relationship with the nation. However, in the long run, a coalition of strong, emerging economies of Asia can turn the tables and fight the American ego.
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