The US President Donald Trump has threatened to wage a trade war against countries he perceives to have an unfair trade advantage to correct the trade deficit of his country. He wants to throw up protectionist barriers so that manufacturing returns to the US, and more Americans get jobs that are currently being outsourced. So far, he has imposed steep tariffs against imports of steel and aluminium, and slapped additional tariffs on 1,300 goods imported from China. He has complained about India's trade policies and made it more difficult to get a H1B (temporary work) visa, which was used heavily by the Indian IT services companies. He has also threatened to wage trade wars against the European Union (EU), and other countries.
In turn, China has retaliated by imposing its own set of tariffs against goods imported from the US. The EU has warned of retaliatory action if Trump takes any further steps. Countries around the world are bracing for a full-blown global trade war.
How will it affect India? On the surface, India's share of global trade - at less than 2 per cent - is too low to worry. But in terms of India's GDP, foreign trade - import and export - actually accounts for over 40 per cent. So, if a trade war breaks out, it will inevitably affect India and its economic growth. India cannot expect to accelerate its GDP growth to 8 per cent plus, unless its exports start growing faster. In fact, every Asian country that has grown its economy rapidly has depended heavily on exports to do so, and there is no reason why India will not follow the same trajectory.
A global trade war, though, might not be all bad news for India. On the one hand, while a trade war can make things tougher for Indian exporters and also make the country vulnerable to dumping of goods from other countries, it can also lead to opportunities. For example, there are many countries - including the EU and China - in which India can hope to increase exports if the US becomes a tougher market. More importantly, a number of countries are re-examining the possibility of bilateral treaties with India (and others) as a means to minimise the effects of an impending trade war.
Global trade has become too important for even an economy as big and powerful as the US to try and slow down. If the US tries to put up barriers, it will find that its people will suffer the most because all goods and services in the country will become more expensive.
But while global trade and the integration of the global economy is a clock that cannot be turned back even by the US, it would be good to remember why protectionism is becoming popular with leaders across the world. A lack of enough job opportunities for people joining the workforce, and rising inequality of income have been the side- effects of the global journey. And that has led to a growing resentment in common people across the world, and in different countries, and leaders need to find a solution to that.