Globalisation was at crossroads at the turn of the century due to East Asian currency meltdown and the failure of the Seattle WTO Ministerial in 1999. At that time there was a UNCTAD meeting in Bangkok in the early part of 2000 to put globalization back on track. At the concluding news conference of the UNCTAD meeting, a reporter observed that as per Hindu philosophy, the only thing that is certain in this universe is ‘death’ and it has become a certainty for globalization that is irreversible and that the world will become one global village one day. Immediately thereafter in 2001, Doha Development Round was launched at the WTO ministerial providing a new lease of life to globalization. More than a decade and a half, Doha Development round negotiation is yet to be completed despite the fact it had missed several deadlines and globalization is again at the crossroads with increasing protectionism, regionalism and bilateral free trade agreements.
Globalisation has helped the world trade to grow manifold and several industrialized economies and emerging economies including India have greatly benefitted. China, in particular, is the major gainer. With the global recession and jobless growth, globalization is being challenged, particularly by industrialized nations, which is challenging the very concept of the laissez-faire, totally open economy. At the WTO meetings after it came to existence, industrialized nations were nudging emerging economies to open up and reduce tariffs, but today it is the industrialized nations, which are dragging their feet threatening the very concept of open and free trade.
US President Donald Trump is clearly spearheading this reversal in economic thinking that had the potential to derail the global economic recovery, which was fragile for nearly a decade due to the unprecedented recession. Trump, championing the causes of domestic economic protection, instead of freedom, and anti-immigration, is unwarranted and this is not going to help in reviving its sagging industrial growth. In fact, the best way would be to encourage domestic industries to become more competitive and efficient to take on the competition from China, Germany and EU, Japan, South Korea, Canada and Mexico.
When India began the economic liberalization process, it was the so-called Bombay Club comprising the then leading Indian industrialists opposed to reforms, particularly the new and open industrial policy, saying India would be flooded with foreign goods and that Indian industry will die. The fact was they were afraid of competition as they were making undue profits with obsolete technology as a command in economy protected their inefficiency. With reforms, some of those industries, which did not change to become competitive, had a natural death, but new, vibrant and competitive industry came into being. The new-generation industry has not only survived but also thrived, taking upon itself the challenges of competition.
US President Donal Trump’s latest announcement, imposing hefty tariffs on imported steel and aluminium — selectively, on some countries — to protect US producers is certainly a regressive step. Trump’s trade war, though dangerous, is triggered by its huge trade deficit, particularly with China. This resulted in Trump announcing a 25 percent hike on import duty on steel and 10 percent in aluminium. The US global trade is valued at $5 trillion and the trade deficit is over $500 billion, which is mostly with China. Economists fear that this steep hike in import tariff could damage the US economy by raising costs for US manufacturers and consumers while prompting its trading partners to impose their own levies on US exporters, increasing costs also and sapping overseas demand. With other countries planning retaliatory measures, the prospect of a global trade war looms large.
Of course, Trump has exempted its neighbouring countries like Canada and Mexico from this tariff hike, which account for nearly 10 million tonnes steel exports to the US. Brazil, which accounts for almost 5 million tonnes exports to the US might be affected.
India exports just 0.85 million tones of steel to the US (the US accounts just 2 percent of India’s steel exports and 6 percent of total aluminium exports). Although the short-to-medium term impact could be minimum, India could witness dumping by US hit exporters like South Korea and Russia. China too could resort to dumping and this may come at a time when the Indian steel industry is in the process of recovery after a few years of slowdown. Also, the possible diversion of 6.4 million tonnes of steel and 3.7 million tonnes of aluminium to the global market will drive down prices, affecting the domestic realization of homegrown producers.
In sum, this, however, is not a good move as this would put global trade and economy in jeopardy besides hitting hard globalization, which was slowly taking firm root. A free and open economy is any day better than restrictive economy and protectionism. The past experience clearly suggests that restrictive practices did not help any economy in the medium to long-term. One only hoped that Trump realizes his mistake and mends his ways for the benefit of US as well as a global industry by injecting competition.
(The writer was a senior journalist, has been Editor of Press Trust of India, Economic Affairs Editor of TickerNews and Financial Chronicle).