A Study of Global Trade War and Its Impact on Indian Economy

Introduction 1. In an era of globalization, international trade is inevitable. When we walk into a supermarket and find South American bananas, Malaysian rubber products, Brazilian coffee, we simply experience the impact of global trade. Global trade allows all countries around the world to publicise their markets and to supply goods and services that otherwise would not have been open to the domestic economy. As all goods and services are available at relatively cheaper prices in the international market, therefore domestic market becomes more competitive. People have got choices for competitive products. Therefore, the difference in the prices of goods of the foreign economy and domestic economy results in international trade. 2. Why nations trade with each other ? Not a single nation alone can generate all the goods and services for its households in today’s world of limitless desires. There is an unequal distribution of factors of production over the countries of the world. Countries of the world differ from each other in terms of natural resources, technology, entrepreneurial and managerial skills which determine the ability of the country concerned, at the lowest cost of production, to manufacture goods and services. For example, South Korea can manufacture cars or microelectronic products effectively in comparison with any other nation in the world, similarly Malaysia could produce rubber and palm oil more efficiently. The ability to manufacture these products, such as electronics or rubber, is much greater than their ability to consume these goods within the country so that they can sell these goods at comparatively cheaper prices to other countries around the world. Similarly, India and Brazil can import certain products from South Korea and Malaysia at lower prices and can in exchange, import Brazilian coffee or Indian textiles at a lower price. Therefore, generally trade benefits all the countries of the world provided it is free trade. If one country has a belief in free trade and the other beliefs in the opposite, only the previous one will end practicing free trade and suffering in the end. Economists say that trade conflicts safeguard economic interests and are advantageous to the local market, but critics claim that they ultimately hurt local companies, consumers, and the economy in long run. Protectionist policies always harm the concept of globalization. According to the World Commission on the social dimension of globalization (2004). “Globalisation should benefit all the countries and should raise the welfare of all people throughout the world”. Advocates of protectionist view put arguments in favour of restrictions of the trade like the expansion of the home market, keeping money at home, counteracting foreign low wages, defence or national security arguments, protection of infant industry, anti-dumping arguments, and balance of payment arguments. Trade restrictions are of two types; tariff barriers and non-tariff barriers. The tariff barrier is the most common barrier to trade. It is the tax or duties that one country imposes on exported or imported goods. There are various types of tariff barriers in international trade. If the tariff is imposed based on the physical weight of some goods, imported or exported, called a specific tariff. • If a tariff is imposed on the value of some goods, imported or exported is called “Ad Valorem tariff”. • If different rates of the tariff are imposed on different countries called discriminatory tariffs. • If the same rates of a tariff are imposed on different countries, called non-discriminatory tariff’. • If the main purpose of imposing a tariff is to produce revenue, called a revenue tariff. • And the most commonly used tariff is the Protective tariff. if the tariff is imposed mainly to protect domestic industries from foreign competitions are called the protective tariff 4. Followers of the protectionist policy argue that tariff imposition has two impacts; revenue increases after the imposition of tariff and home production increases which is called protective effect but if other countries retaliate in the same manner, the trade war is inevitable. A situation of trade war erupts when one nation or economy strike back against another economy by imposing trade barriers. The application of trade restrictions is not a new concept in international trade. If we study the background of the global trade war, we find that countries frequently used trade restrictions in global trade. The situation was aggravated after the second world war. Most of the countries were intentionally devaluing their currency to increase their export and minimise imports. This was also the reason for the currency war between countries. 5. We can divide the world trade in the pre-Bretton Woods and post Bretton Woods period. An efficient international monetary system is very essential for the smooth functioning and expansion of international trade. From the early 19th century until the first world war, the era was regarded as a period of internationalism. Most of the major industrialised nations of the world started participating in world trade. After the second world war and the hectic slump and currency war that followed it all the countries of the world wished to return to normalcy. Two causes were responsible for this wish: - • Reconstruction of the economies ravaged by the war. • To end the currency war. As far as the second cause is concerned many countries or the trading partners of the world started devaluating its currency to improve the conditions of their BOP. This resulted in a trade war between nations. Therefore, in Bretton Woods, New Hampshire, USA, members of 44 countries met to discuss these problems and to find realistic solutions for them. This conference proposed the establishment of: - • The International Monetary Fund (IMF), to help member countries to meet their BOP deficit problem. • IBRD, to reconstruct and develop economies of member countries. • An International Trade Organisation (ITO), to solve the problem of international trade and proper liberalisation of it. 6. However, the proposal for the International Trade Organisation did not materialise and the General Agreement on Tariff and Trade (GATT) was formed. The GATT was established in 1948 with a big and important objective of “free trade” and “no trade war”. Its main purpose was to remove trade restrictions which sooner or later converts into a trade war. The first seven rounds of GATT were focussed on the removal of trade barriers only. Despite these discussions in several rounds of GATT, it couldn’t provide a useful forum for discussion on international trade issues. 7. The 8th round of GATT is called Uruguay Round which started in 1986. Member countries negotiated in the areas of Tariffs, Non-Tariff Measures, Tropical Production, Natural resource-based products, Agriculture, GATT articles, Safeguards, Multilateral trade negotiation agreement, Subsidies, Disputes Settlement, Trade-Related Intellectual Property Rights (TRIPPS), Trade-Related Investments measures (TRIMS), Functioning of GATT system (FOGS). Despite serious discussion on these issues’ agreement could not be reached and member countries kept on using trade and non-trade barriers on each other. 8. COVID-19 pandemic, which started in March 2020, has adversely affected global trade. As per WTO statistics, a 3% fall in the volume of merchandise (export and import) trade is seen in the first quarter of 2020. Lockdown in many economies of the world aggravated the problem and declines are historically large. Strict social distancing and majors and restrictions on travel and transport adversely affected the service sector of the world economy which is the main contributor to gross domestic product (GDP) of many countries. Therefore, the economic recovery from the COVID situation is highly uncertain. This situation might give a boost to the global trade war which will be the endeavour during the research to be found out and a description of the same has been covered in Chapter 3. The research has tried to reveal how the pandemic has crippled the world economy and aggravating the pre-existing problem of the trade war. The recent trade war between China and the USA is an apt example. Recent Examples of Trade War​​ 9. Since the year 2018 world has been witnessing trade conflict which was earlier currency conflict between the USA and its economic partners mainly the EU and China. But in this conflict US’s all-weather friend Canada and Mexico were also hit. However, retaliation by other countries has been very limited. In March 2018, the United States announced the imposition of additional tariffs under Section 232 on imports of steel (25%) and aluminium (10%) from China to the United States. This might harm the Chinese economy as China is the major contributor of crude and finished steel in the world. 10. In the same month, the US President announced his strategy to endorse restrictions against China over its Intellectual Property Rights (IPR) policies which were severely affecting its stakeholders. In this sanction, the US raised tariffs by 24 to 25% on selected Chinese products which were valued to the tune of approximately $50 billion. By adopting the policy of quid pro quo China on 01 April responded with 25% tariffs on $50 billion in US exports on various American products, like agriculture, pork, and cars. On 3rd April 2018, the US administration released a list of 1,333 goods equivalent to $50 billion in trade, which it said would enforce a 25% tariff. 11. These Chinese products mainly belong to the category of important sectors like robotics, rail and shipping, information technology, health care, and medicine, and high-technology. China retaliated and published a list of 106 products on which 25% tariffs were imposed and its value was worth $50 billion in trade. Thus, quid pro quo tactics kept ongoing between China and the

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