Trade Wars and the economic slowdown: Where does India stand?

Global trade has taken a severe hit since the Trump tariff wars with China, India and other emerging economies. The World Trade Organisations (WTO) periodic review cites that new trade restrictions have hit a historic high with a slew of import bans, tariffs and export duties being applied by its member countries. As a result, global trade has contracted in 2019.

With remote prospects for a breakthrough in relations between US and China in an election year, the projections for robust global growth for 2020 are also bleak. These challenges are compounded with a crisis at the WTO and its Doha Round.

President Trump has used the WTO logjam to push through his own reform agenda which includes a new global e-commerce agreement, disempowering the dispute settlement body, removal of special and differential treatment for some emerging economies and a shift from multilateral to plurilateral mode of negotiations. While the current WTO has offered little benefit to developing countries, they stand to lose further under the Trump reforms.

Given the longstanding impasse at the WTO, India has been implementing and negotiating several bilateral and regional Free Trade Agreements (FTAs). Even as Commerce Minister Piyush Goyal travels to Bangkok next week for a Trade Ministerial meeting of the Regional Economic Comprehensive Partnership (RCEP), a mega FTA that includes 16 nations, India runs a massive trade deficit of US$ 112 billion (2018-19) with 11 of them. The highest at US$ 53 billion is with China.

Experts, trade unions and industry bodies have warned about impending job losses in sectors such as dairy, steel, aluminium, electronics, pharmaceuticals, textiles, automobiles and auto parts if India accepts RCEP provisions. With the slowing Indian economy already reeling from a spate of job cuts in sectors such as automobiles, auto parts, jewellery, textiles and Fast Moving Consumer Goods (FMCG), trade liberalisation will spell further disaster for livelihoods.

Given the global slowdown in trade and growth, the question of what is next for India’s trade policy has never been more relevant. Moving forward, policy makers will need to find ways to ensure that trade policy responds to the real needs of the economy not free trade dogma. At the same time, they also need to combat the domestic crisis in the economy, which includes stagnating industrial and agricultural growth with precarious job creation in the services sector. This will entail the urgent enactment of domestic industrial, agricultural and services policies – from which an appropriate trade policy strategy should follow.

Now, it remains to be seen how best India can navigate the current slowdown amidst the fraught economic realities of global trade.