Talking trade in the time of Trump

How should India respond to Trump’s pronouncements on trade or the growing protectionism that threatens to undo the world trade order of the past 70 years? The short answer is: We should use this time to set our house in order and keep quiet unless there is specific provocation.

Is Trump saying anything new? The US has always been hawkish in trade matters and pursued hundreds of trade disputes with Europe, China, Canada, India and many others. Accusing China of malpractices is also nothing new. Consider what Obama said in September 2015: “You (China) can’t act as if you are a third-world country and pursue protectionist policies, or engage in dumping, or not protect intellectual property.”

But Trump introduced one radical shift in the US trade policy. While so far the US fought trade battles within the ambit of WTO law, implementing Trump’s agenda, which includes imposing steep import duties, would require breaching the existing laws. How far Trump will succeed is anybody’s guess, but the next four years will see a more inward-looking world.

But the US is not alone in this game. The world Trump inherited was already inward-looking. Since the economic crisis of 2008, the US, India, Russia and China together have imposed more than 2,000 trade restriction measures in order to save domestic jobs and industries.

This was done through increasing customs duties, imposing anti-dumping and safeguard duties, favouring local firms in state contracts, subsidising export finance and providing export subsidies. Steel is a prominent example where import was restricted by all major steel-producing countries. According to WTO director-general Roberto Azevêdo, such “trade restrictive measures can have a chilling effect on trade flows, with knock-on effects for economic growth and job creation”.

A weakened WTO also contributed to growing protectionism. Reduction in average global tariffs from over 100per cent to 15 per cent during 1947-1994 benefited most countries. But since then, the WTO trade agenda has steadily been pushed to deal with non-trade issues such as intellectual property rights and investor protection, of interest to few developed countries.

This nearly paralysed the WTO, which could not make any noteworthy trade rules in the past 15 years due to crowding of the trade agenda. Soon, countries such as the US started ignoring rulings of WTO’s disputes panel whenever it was against their interests.

Lack of decision-making at WTO also pushed countries into negotiating mega FTAs such as the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). But here also non-trade issues dominated, making negotiations complex and almost always requiring political support to conclude. For example, many countries feel that the provisions relating to resolution of investor-state disputes that bypass the national judicial system in favour of some tribunals will undermine national sovereignty.

I recommend just one action. And it is long overdue. We must invest in a team of trade professionals to deal with all trade-related issues. Trade is dealt with by experts in all important countries. Consider Trump’s trade team with Peter Navarro as head of the White House National Trade Council, Wilbur Ross as the Secretary of Commerce and Robert Lighthizer as the US Trade Representative. All three are seasoned professionals with expertise in trade issues. They will work to implement the “Trump Trade Doctrine” that would lead to “decrease in the trade deficit through the imposition of import tariffs and renegotiation of bad trade deals”. We may not agree with the agenda but cannot disagree with the fact that only top experts can sail against the stream.

Trade professionals can be used for developing capacities in all aspects of trade: developing product and markets, standards, non-tariff regimes for important products, manning trade missions and leading trade negotiations. Good outcomes require deep understanding which cannot be developed in one or two years. For example, a good trade professional alone can see if the trade agenda on the table is good for the country. And this is so important.

Two examples will illustrate this:

One: The international trade agenda is set by officials, researchers and institutions paid to look in a certain direction. They regularly make tall claims to sell an agreement.

Let us see how they exaggerated the supposed benefits of the Trade Facilitation Agreement (TFA). Initial modest numbers were quickly inflated when many countries, including India, opposed a mandatory TFA in favour of voluntary trade facilitation efforts guided by the needs of a country.

The Economist , in November 2013, said the trade facilitation measures would add $68 billion a year to global output. This figure was revised within a month to $400 billion.

The Peterson Institute raised this figure to $1 trillion. WTO soon lapped up this $1-trillion figure but changed it from global output to increase in exports. WTO did this without realising that an increase in $1 trillion exports would require at least $3 trillion in output. A similar pattern played out at the launch of the Doha round, the TPP or the RCEP negotiations when benefits were exaggerated to secure the support of developing countries.

The sad part is that most developing countries, including India, believe and use these figures in deciding their course of action.

Two: Trade liberalisation has both good and bad effects. For example, shifting jobs from a high wage to a low wage country for sectors such as garments where wage is the major component of production, is an inevitable result of trade liberalisation. But such ‘bad’ effects were never highlighted by mainstream experts. One needs country experts to do this.

Finally, how should we respond to the US pronouncements such as possible curtailing of visas for IT professionals? We may let the US fight its trade wars with China or Mexico or anyone. Why direct their attention to us unless the action is targeted only against us and also has enormous cost?

The writer is an officer from the Indian Trade Service. The views are personal