In one of his first executive acts, United States President Donald Trump pulled the US out of the Trans-Pacific Partnership (TPP). He has said he will now turn his guns on the North American Free Trade Agreement. Given he had once pledged to reconsider US commitments to the World Trade Organization, it seems international trade is set to enter an unusually contentious time. Most major multilateral trade negotiations are at an impasse. And anti-trade sentiment has found voice even in an export champion like Germany.
India has reason to be nervous but also has few grounds to complain. The forerunner to Mr Trump’s protectionist sentiments, if anything, was the trade policies enacted by New Delhi. Morgan Stanley has listed India as among the countries “relatively exposed” to hostile US trade action, specifically because of India’s $7 billion surplus in information technology services. This seems already happening. The new US Congress is moving to shut the door on H-1B visas and may target L visas next. Generic drugs are also on the firing line. Nonetheless, it is relatively evident that it is countries with large surpluses in goods trades that will face the brunt of Mr Trump’s ire, most notably China and Mexico.
The Narendra Modi government seems to hope Mr Trump’s perception that he has a convergence with India ideologically and strategically will stay his hand on more punitive actions against India. That will only be clear once all the empty seats in his administration are filled. But the evidence, so far, is that Mr Trump’s economic nationalism will override all other considerations as this directly addresses the job concerns of his white working-class political base.
Mr Modi will not be able to claim the high road when it comes to trade. India has been among the most obstructionist countries in multilateral trade negotiations, the WTO’s Doha round being on its victims. Its use of anti-dumping actions against imports has more than doubled between 2013 and 2016, and it has imposed tariffs to try and encourage domestic manufacturing, a policy with a long history of failure. India has been a free-rider in global trade, expecting access to other markets even while keeping its own door closed. Mr Trump’s unilateral trade policies are likely to inspire similar actions by other countries. India can expect to be at the receiving end of such moves, and recognise that its own stance to trade is partly responsible.
India’s only saving grace in a worst-case scenario of unilateral trade actions is that it barely counts in international commerce. Its share in world exports has fallen to 1.6%. While its export picture is less gloomy than figures make it out to be, once exchange rate changes are taken into account, the truth is India remains irrelevant to global trade. And it will be pushed further into the margins in a Trump world of rising trade barriers.