The economic conflict in which states create trade wars against each other can be defined as a trade war. One of the causes of the trade war is extreme protectionism. To promote international trade by reducing trade barriers such as tariffs or quotas, a legal agreement called General Agreement on Tariffs and Trade (GATT) was formed in 1948. In 1995, GATT became the World Trade Organisation(WTO).
Between India and the US:
India runs a trade surplus in the case of the US, which means India exports more to the US than it imports. India ranks ninth on the list of trading partners that have a trade surplus with the US. In two metal– steel and aluminum, India is a minor exporter. According to the Bloomberg estimates, India accounts for 2 percent of US steel and aluminum.
- From 5 June 2019, India’s designation as a “beneficiary developing country” under the Generalised System of Preferences (GSP) was ended by Trump administration. Under GSP, India is the largest beneficiary nation.
Under the Generalised System of Preferences (GSP), preferential duty-free entry is provided by the US for thousands of products.
- On 15 June 2019, India decided to raise the tariff on some imports from the United States.
- Trump has described India as a “tariff king” and has been a vocal critic of India for levying "tremendously high" duties on US products.
- Trump is also concerned about the developing-country status of India and China under the World Trade Organisation.
China and the U.S:
China and the U.S trade war began in March 2018 when US President Donald Trump had slapped heavy tariffs on imported steel and aluminum items from China and China, in retaliation, imposed tariffs on billions of dollars worth of American imports.
- Non - transparent subsidies given by China to its state-owned firms that benefit consumers of the world. But this type of trade is unsustainable, politically and economically.
- Tariffs were imposed on China’s unfair trade practices by US President Donald Trump in July 2019. Although, US President Donald Trump hit the pause button on the year-old trade war with China.
- According to a Bloomberg Economics report, the world gross domestic product could be reduced by 0.6 percent in 2021 compared to a no-trade-war scenario.
- According to a survey by the National Association for Business Economics, a recession could grip the US in 2021.
- China will have to bear more lose because of the tariff war between the world's two biggest economies as China's GDP is expected to lower by 1 percent while the US' economic output is expected to dip by 0.6 percent.
- If this trade war continues, it will clog the arteries of trade and the economic damage will definitely show up somewhere, perhaps where it’s not expected.
Impact on India:
- The trade deficit could be widened if India’s trade war with the US escalates.
- India can be severely affected by any trade war as India exports plus imports of goods and services constitute around 42 percent of GDP.
- For exporting products to countries like Serbia, the Indian companies are required to pay 15 percent duty,
Whereas products exported from Europe to the Balkans enjoy preferential treatment and hence are exempt from Customs duty.
- In comparison to other competing countries like Vietnam, Bangladesh, and Pakistan, Indian textile companies face trade barriers. For India, the US and EU markets absorb about 60 percent of our output in apparel.
- India needs to make free trade agreement (FTA) with more number of the countries to improve market access.
- Falling rupee and rising oil prices can make worse the condition of dollar-denominated debt.
- The companies that rely on components and raw materials have a strong connection with trade.
- India is among few economies that stand to benefit from the trade war between China and the U.S according to a report of United Nations, but, if the tension persists for long then there could be a slowdown in the Indian economy too.
Effects of globalization:
- These tariffs worsened the crisis and also delayed economic recovery. If the trade war is not controlled within a time frame, it may lead to widespread economic damage.
- Now, trade wars are converting into a tussle and the effects of these trade wars would be very severe if China does not stop its unsustainable trade policies.
- Trade tariff does not affect just one country as the world is deeply connected. For example, since World War II, Western Europe and the US have held close trade and security relations.
- The intellectual property regime of China is harming the original innovators.
- The global supply chain and payment mechanisms can be severely affected because of global trade tensions.
- Many countries are using unsustainable ways of trade because of US sanctions.
Effects on various countries:
- Latin America’s growth would slow down in this trade-war scenario.
- Argentina has a lot to lose from trade war conditions. Its primary product exports could benefit from barriers imposed by China on US agricultural products.
- Mexico’s economy should suffer less as the country’s fundamentals are strong and narrow fiscal and current account deficits.
- In Chile, Colombia, and Peru, growth is likely to decelerate. Colombia is less sensitive to China but the countries like Chile and Peru’s fundamentals are weaker.
- The Brazilian economy would still slow down with the global economy because its economic cycle is correlated with the global economy to a great extent, the country is a large receiver of foreign direct investment (FDI), fiscal weakness and lower global growth.
From the current scenario, there seems to be a definite move by all country to become more restricted and this is perhaps the shape of things to come. Globalization 3.0.