Time to cool US-China trade tensions

The G20 summit at Osaka is the perfect platform for the world leaders to think beyond protectionism

By Author Dr K Srinivasa Rao   |   Published: 28th Jun 2019   12:05 am Updated: 27th Jun 2019   9:16 pm

Closely followed by deliberations at the Shanghai Cooperation Organisation (SCO) at Bishkek, the G20 summit at Osaka (June 28-29) is a glimmering hope to pursue constructive dialogue to end the ongoing trade tiff with the US, and particularly between the US and China. The raging conflict has now begun to cause immense collateral damage to many trading partners in the value chain.

After restraining reciprocal action for over a year waiting for an amicable resolution, India too had ultimately decided to impose tariffs on 29 American goods effective June 16, in response to US tariffs on Indian steel and aluminium imposed a year ago. The tariffs will apply to $220-290 million worth of US goods almost equating the impact of US tariffs on India. Adding to the tariffs, the US also withdrew export incentives to India under its Generalised System of Preferences (GSP).

By restraining its action so far, India had demonstrated its aspiration to work towards resolving international conflicts under its ideological belief of ‘vasudhaiva kutumbakam’ (The world is one family). The truncated exports due to tariffs and continuous rise in imports may further increase the trade deficit.


Shift in US Trade Policy
As against the spirit of multilateral trade discipline, the recent trade war began with the US shifting its stance from multilateral free trade agreements to bilateral trade deals. The call of ‘America first’ is a unilateral move much against the need for promoting multilateral trade regime. The US began to impose tariffs last January on solar panels and washing machines in the range of 30-50%. But international ire was more when it imposed 25% tariff on steel and 10% on aluminium, from its allies, including India and China, in all covering 4.1% of US imports.
Again in July, the US imposed another set of tariffs of 25% on 818 categories of goods imported from China worth $50 billion instigating retaliatory action. Consequently, Canada and China imposed retaliatory tariffs on US goods. The US and China since then have imposed tariffs on goods worth $360 billion on each other increasing the acrimony. The US even had to provide a bailout package worth $12 billion to the farming community that is impacted by Chinese tariffs though it failed to provide much relief. Thus the trade tiff, started by the US, more than making imports dearer had begun to dilute the sanctity of the multilateral trade system put in place by the World Trade Organization (WTO) after protracted negotiations and rounds of conciliatory discussions.

The ‘get tough’ attitude of the US administration has caused more collateral damage to the global trading system. Economic implications of such tariffs will be many times more damaging than it benefits the underlying domestic trading entrepreneurs. There is a need for global leaders to rise above the protectionist and inward-looking mindset.

Role of WTO
Facilitating orderliness and prescribing rules for world trade is ensured by the WTO by bringing trading partners to the discussion table to carve out multilateral trade agreements and documenting win-win terms of trade. Disturbing trade flows with unilateral moves is a sign of desperation. Concerned over the heightening trade war between the US and China, the WTO had rightly apprehended far more global trade disequilibrium. According to Roberto Azevedo, Director General of WTO, “This is the moment when some very basic principles of the organisation, principles of cooperation, principles of non-discrimination are being challenged.” He outlined the need for change in “mode of engagement” between China and the US from “threats, accusations and finger pointing to one of finding solutions.”

Logically, the sanctity of multilateral trade pacts is more important to benefit international trading partners in the long-term. Reciprocity and mutual respect for consultation and collaboration are more important in cross-border trade. Unilateral actions are to be restrained in the interest of sustainability of trade relations. The WTO joined by 164 countries representing 98% of the world trade had reinforced its commitment to persuade the US and China to sort out trade conflict by mutual discussion. The US is aware that the dispute resolution at the WTO takes considerable time and in the meantime can benefit it to protect its industry.

Reciprocal Deals
Since no one would be the winner in a trade war, the world leaders converging in Osaka should persuade the two global economies to think beyond protectionism and demonstrate global leadership to resolve the differences. Bilateral understanding and reciprocal trade deals will create better long-term trade relationship. The growing tendency of unilateral protectionism and mighty attitude to impose trade tariffs that began between the US and China needs to be resolved quickly to restore semblance to international trade.

The candid views expressed by global leaders during the SCO summit highlight the need to respect the multilateral trade regime facilitated by the WTO. China embarking on a ‘new Long March’ asking its entrepreneurs to build resilience signals that the trade war is far from over that may prolong the ordeal.

In such a situation, India can play a mediatory role to diffuse the trade tensions with its imposing voice in the global forums. It is necessary for trading partners to refrain from imposing unilateral trade barriers that retard development and work assiduously to diffuse trade war. If exacerbated, it can precipitate tensions stretching far beyond trade turf. The earlier the trade war is put to rest, the better it is to restore the pace of free international trade.

(The author is Director, National Institute of Banking Studies and Corporate Management, Noida)

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