Business Today

Trump: Trade challenges just became harder

Protectionism in the US may boost free-trade agreements in emerging economies
Rajeev Kher   Delhi     Print Edition: March 12, 2017
Trump: Trade challenges just became harder

Donald Trump's anti-globalisation tirade was more than an election rhetoric. He began executing it on day one in office by first withdrawing from the Trans-Pacific Partnership, or TPP, followed by mandating the building of the Mexican wall, visa ban and review of the work visa regime. Trump means to execute his "American vision" quite stubbornly. The judiciary, American intellectual class and multinational corporations are going to resist, albeit for how long in the teeth of his leadership style, remains to be seen. Lately, he has also shown his pragmatism on China and Japan.

How far can Trump go to materialise his "Buy and Hire American Dream" is evidenced by his proposed tax and trade policy changes. How would he craft such policies on the benchmark of WTO rules needs to be seen. To what extent the American industry would require to improve its competitiveness is yet another challenge. Thirdly, forward and backward global linkages of American manufacturing and services with developing economies should also give Trump a reason to ponder before he executes any of his grand designs.

The most significant statement coming from Trump is America's focus on bilateral trade agreements. This fits in well with his leadership style. Will Trump ask India a price in the nature of a trade agreement, if in his global perspective on China containment, he offers India a greater role on the global stage? If so, can India pay that price? How do we look at our agriculture sector in this context? Will non-trade issues continue to dominate the potential relationship? There are issues related to productivity and structure of our agriculture. India has held on to its position on intellectual property. Can it do so for long?

Multilateralism in trade policy has been on the back-burner, courtesy the Obama regime's fascination with the TPP. Trump is not going to change that anymore, though for different reasons. The WTO will continue to be a slow-moving discordant organisation. If India wants to benefit from multilateralism, it must take a look at its approach to some of the subjects being discussed under the Doha rubric and improve its leadership position in WTO.

Nevertheless, it is time for India to put its act together. The emergence of the TPP as a new architecture of global trade was itself a good reason to sit up and expeditiously recalibrate industrial and economic reforms. Despite the strenuous efforts of the political leadership, manufacturing has not picked up. Irrespective of the catch phrases introduced in the politico-economic lexicon of the country, the fact remains that India can improve only by becoming more competitive in the manufacturing sector. A recent CII survey of four critical sectors of India's economy - pharmaceuticals, textile and garments, electronics, and auto components - shows that India's logistics and infrastructure sectors face serious deficits. Even in case of a 10 per cent reduction in indirect costs, it would generate only up to 5-8 per cent extra exports. Some fundamental structure and process-related reforms are overdue in the trade logistics and infrastructure sector.

An environment against free-trade agreements has been built on account of deep-seated protectionist psyche. It will not be a surprise if this psyche in India gets a reactionary boost due to protectionism in the US. Stitching free-trade agreements is an intrinsic part of an emerging economy's trade policy. These agrements require strategic approach, careful selection and expeditious negotiation. It is difficult to deal with China from an extremely defensive position. We need a categoric political understanding with China in the emerging architecture - both political and economic - in the backdrop of Trump's emergence in the United States. If co-existence at a higher and sustained rate of growth can be the hallmark of this understanding, we should conclude the regional comprehensive economic partnership (RCEP) with some more forward-looking vision. Unfortunately, the industry in some critical sectors remains protectionist. Building strong value chains within Asia will be the fundamental reform which India, China and ASEAN can bring through the RCEP.

If we are going for the RCEP on the Eastern front, the Western front needs to be strengthened all along the International North-South Corridor, involving Iran and Eurasia, in terms of trade and infrastructure linkages. A sustainable trade partnership with potential African markets is long overdue. This must be built on the understanding of asymmetric responsibilities by India as in South Asia.This needs strong political push.

The anti-globalisation wave witnessed in the US, the UK and some other European countries clearly indicates that the business model of information technology services exports may lose its charm sooner than we think. We must distribute our eggs in some more baskets even if it requires learning new languages and acclimatising to new cultural environments. It also necessitates faster upgrade on the technology chain through a new breed of innovative technology and business practices. India envisions itself high up on the technology ladder. Are we prepared to deal with the demands this may put on us in the areas such as intellectual property protection and data privacy? Is there a case for differential approach to intellectual property protection in India, based on distinction of mass-serving technologies and high value creating technology of the future?

Services continue to be the fulcrum around which India will build its new economy. Quality consciousness and standards-based regulatory regime must infuse appropriate ecosystem for emergence of a set of state-of-the-art services and technology-based products. The challenges before India's trade policy have only become harder.

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