The Trade Wars and Beyond!

  The world seems to have come full circle w.r.t. globalization with the increase in protectionist policies getting formed in many countries. With the greatest consumer on the planet now introducing heavy tariffs on outside goods, we may be looking at a fundamental shift in global trade and finance.  India has been among the greatest beneficiaries of the globalization over past few decades. All the major countries have treated us with soft glove despite our unfair practice of direct and Indirect barriers in world trade. The U.S. imposing high tariffs on all countries including India, may be a good opportunity for self-reflection and future planning.

     In an in an ideal world, there should be absolute cross boarder free trade among individuals or firms (except for any defense or related items). But world was never quite there.  Even at the height of globalization, various countries have tried to protect certain domestic producers for various reasons.  For example, domestic agriculture and farm produce have always been one of the most protected goods by many countries, be via external tariffs or internal subsidies.

     While the additional U.S. tariffs may look like an arbitrary move, there are be some cold calculations why the current U.S. administration is doing it. There are obvious reasons like playing to the gallery of ultra conservative voter base. But there are hard financial considerations as well like trying to devaluate the dollar.  But irrespective of reasons, unless the decision is turned down by U.S. Supreme Court, the tariffs levied by the U.S. are here to stay, at least for a short term. The world and India can only hope that the scope of these policies do not get extended to service sector in future in some way.

        Let’s take a look at some short-term and long-term actions for India as proposed by *experts -

Short Term Tactical Measures

•  Lobbying with U.S.  administration via back channels for tactical concessions for certain goods (Like Brazil is doing).

• Find alternate routes for impacted Indian goods to the U.S.

• Provide short term relief to the impacted workers through their employers till situation settles.

• Find alternate consumers for the impacted goods (domestic and external).

• Ensure through negotiations that the impact does not get extended to India’s golden goose (Services exports).

• (Tongue in cheek quick win!) Endorse the Nobel Peace Prize for a certain someone :-)

Long Term Fundamental Changes

•  Long term Trade agreements with EU and other major markets.

•  Work on monetary and trade policies to prepare for potential de-dollarization of world.

•  Find focus areas that can serve as India’s growth engines (e.g. Software Services, GCCs) and use them as compensation for other areas (focus on India’s equivalent of oil). 

• Regulatory reforms to increase ease of doing business including tax reforms. 

•  Judicial reforms including ease of contract enforcement of all kinds. 

•  Agricultural reforms. 

•  Educational reforms.

Conclusion

      We may be witnessing reshape of global world order. The world is going through some fundamental geopolitical and financial changes. Countries may start operating in different ways than we have seen them operating for last few decades with lesser power to global referees like the U.N. and W.T.O. Trade war is only a small portion of broader picture.

       India should smartly move though these changing times striking a delicate balance and not fall for false rhetoric of complete self-reliance. We need the world for exchange of goods, services and ideas as much as the world needs us. Any missteps at this point may harm our ability to fully leverage our demographic dividend which we have only for next two decades.

* Further Reads from Experts -   

• Vijay Kelkar and Ajay Shah, Indian economic strategy in the new globalization , The Leap Blog.

• Ajay Shah and Amit Varma, What Should India Do, Episode 114, Everything is Everything Podcast.

• Neelkanth Mishra and Mukesh Bansal,  India is paying for America’s broken Economy!,  SparX Podcast.