Global trade war: A battle where all parties stand to lose
Statistics from the United Nations Conference on Trade and Development (UNCTAD) show that global trade growth between 2010 and 2015 was the lowest in five-year periods beginning in 1995, the year when the WTO came into existence.world Updated: Dec 28, 2018 09:58 IST
2018 will be remembered in global economic history as the year when the already-fragile consensus over the liberal multilateral trading order received its biggest blow. In keeping with his America First rhetoric, US President Donald Trump unleashed a series of tariff hikes targeting Chinese imports. China too retaliated in kind. The US and China are the two largest economies in the world. China’s economic rise has been accompanied by a surge in Chinese manufacturing exports into the US, which many including Trump see as a big reason for the destruction of jobs in the US economy.
Prospects of a trade war among world’s largest economies spooked economic observers across the world. Commodity prices went down, global economic growth and trade growth projections were reduced and protectionist policies started gaining traction across the globe. As far as the impact of the trade war on global trade is concerned, the World Trade Organisation (WTO) downgraded its global trade growth forecast for 2018 and 2019 by 50 basis points and 30 basis points between April 2018 and September 2018. One basis point is one hundredth of a percentage point. Trump announced most of his tariff hikes after April.
These headwinds to global trade have come at a time when the impact of the 2008 global financial crisis is still lingering. Statistics from the United Nations Conference on Trade and Development (UNCTAD) show that global trade growth between 2010 and 2015 was the lowest in five-year periods beginning in 1995, the year when the WTO came into existence.
What is ironical is that protectionist measures by the Trump administration have not helped in controlling the US trade deficit. According to statistics from the Bureau of Economic Analysis, the US current account deficit as a percentage of GDP actually increased by 40 basis points between the second and third quarter of 2018. While the gains to the US economy from such measures remain uncertain at best, they have thrown the rest of the global economy into great jeopardy.
For India, which has adopted the export-oriented Make in India as one if its flagship economic policy objectives, policy dilemmas will increase going into the future. On the one hand, there is an opportunity to capture some of the export market in what as of now is a bilateral retaliation between the US and China. For example, India could target greater textile exports to the US and bigger soybean exports to China. But a proliferation of the trade wars will also mean that global trade as an engine of economic growth will come under pressure and egalitarian trade policies, especially in agriculture, will take a hit. Both will generate headwinds for economic growth.
First Published: Dec 28, 2018 09:36 IST