NEGATIVE CONNOTATIONS OF INTERNATIONAL TRADE

International trade is the exchange of goods, services and capital across national boundaries. As it is a vital part of global economy, its significance has been rising in recent times. Global trade may give consumers an opportunity to be exposed to new products and markets. However, it is more costly than domestic trade.

Cross border trade leads to additional costs ,such as, explicit tariffs, as well as non-explicit barriers, such as, long duration, language and cultural differences.

World Trade Organisation

To ease and justify the process of trade between different countries international economic organisation like W.T.O.(World Trade Organisation) took shape in 1995. Its precursor was General Agreement on Trade and Tariff (GATT), established in 1947 with coming together of 23 member countries.

As an intergovernmental organisation, W.T.O. regulates and facilitates trade in goods, services and intellectual properties between various nations. Headquartered in Geneva, Switzerland, it is world’s largest international economic organisation with 166 members.

Governments use it to establish international trade and revise & enforce the rules that govern international trade in co-operation with the U.N.

Its purpose is to reduce tariffs and other barriers of trade. W.T.O. provides a framework for negotiating trade agreements as also facilitates dispute resolution. It ensures coherence and transparency of trade policies. It is also a centre of economic research and analysis. However, it maintains silence when some countries cross all limits.

What is a Tariff ?

Tariff is a direct tax imposed by the Government on imported goods which is paid by importers. These are trade barriers that raise prices, reduce available quantities of goods and services and create economic burden on foreign exporters. Tariffs also create market distortions which can harm domestic consumers. Idea should be to protect domestic producers. It is a form of foreign trade regulation.

Tariff also known as a duty or Customs duty provides substantial revenue to the Government but it does hurt trade balance, output and employment. Car tariff of 110% is very high. That is why, Donald Trump and Elon Musk are very critical of it.

Ever since Donald Trump has taken over as President of U.S.A., tariff is being used as a weapon, which is unfair. U.S. is pursuing a policy of financial dominance. It is aiming to reduce unproductive foreign expenditures and concentrate on world’s most valuable consumer market. It wields its economic power more aggressively to secure trade advantages.

Systematic dismantling of old institutions like US AID is one such step. U.S. had used it as a soft power against poverty and disease. It is also showing open hostility toward European Union which has resulted into E.U. losing its privileged status as America’s primary trading partner.

Though U.S., Canada and Mexico are bound by USMCA, a tri-lateral trade agreement, supposed to benefit the signatories, disagreements are surfacing owing to U-Turn being taken by the U.S. President.

U.S.-Mexico Tariff Issues

While after China, Russia is being targeted by the U.S.A. for raising tariff, Mexico, has managed to win some confidence of Trump with reference to USMCA. Now Mexico would not be required to pay tariffs on any goods in relation to USA.

It has been confirmed by Claudia Seinbaum, the Mexican President after she spoke to Donald Trump. According to her tweet on X, two countries would also work to curb arrival of guns from U.S.A. to Mexico. Not only they are each other’s top trading partners, the automobile sector gains immensely from cross border movement of goods.

U.S.A.-Canada Issues

Apart from Trump’s desire to make Canada a 51st province of U S.A., Canada has been threatened on several issues ever since new President has taken over. A trade war between U.S.A and Canada began on 1st February when U.S. President signed orders imposing near universal tariffs on goods from Canada and Mexico entering U.S. market. Proposed higher tariff rates on Canadian goods and services will lead to price rise in U.S. market. These are being levied to curb flow of illegal border crossings and drugs. Higher tariff on Canadian goods may also lead to job losses and even recession. But with election of Mark Carney as Canada’s 24th P.M., things are going to change. In view of his being a former Governor of Bank of Canada and former Goldman Sachs Executive, Canada is bound to face U.S. tariff threats more effectively. He has chaired a task force on economic growth apart from being Advisor to Justin Trudeau, the former P.M.

In a move on 12th March, President Trump has threatened to increase tariffs from 25 to 50 % on steel and aluminium from Canada. Canada is the largest foreign supplier of these goods to U.S.A. It is planning to come out with its own counter measures.

Melanie Joly, Canadian Foreign Minister has opined that excuse for tariffs shifts everyday. Only constant seems to be President Trump’s talks of annexing our country. We will not back down.

U.S.-China Trade War To Heat Up

An economic conflict between U.S.A. and China is nothing new. It has been going on since 2018. After imposing a blanket 10% tariff on all the Chinese goods in February, U.S. has recently hiked the rate to 20%. Now China is beginning to levy tariff on certain U S. agricultural goods in retaliation. China too has imposed 15 % tariff on U.S. goods with effect from 10th March. Incidentally, U.S.A. is the biggest importer of Chinese goods as cheap labour in China leads to high incidence of production.

India & U.S. Tariff Negotiation

As far as India is concerned, discussions on tariff and other aspects of trade relations figured in P.M. Modi’s visit to USA in the second week of January. A blunt Trump has again claimed that India charges massive tariffs and that it was restrictive to do business with New Delhi. You can’t even sell anything into India. It is restrictive. By the way, they have agreed to cut their tariffs. U.S. exports to India accounted for 41.8 billion dollars out of total two-way trade in goods worth 129.2 billions in 2024.

Trump has criticized India’s high tariffs and trade policy accusing India on several counts. These hinder American businesses – “You can’t even sell anything in India”. He has clarified at the same time, that India has promised to reduce its tariffs significantly. Slashing of tariff has happened after ‘being exposed’, as per him.

India currently imposes much higher import taxes on products of U.S.A. than the U.S. does on Indian goods with a gap exceeding 10% points. However, India maintains a trade surplus of over 36 billion dollars with the U.S.A.

Right now both the countries are negotiating a Multi sector Trade Agreement, aiming to reduce tariffs and non-tariff barriers. U.S. is pushing India hard to reduce tariff on car imports (e.g. Tesla electric cars) as it is a major point of contention. A Bilateral Trade Agreement to enhance trade relations between the two will mean a lot.

To ward off a potential trade war, Govt. of India has signalled wide ranging cuts in imports of cars, chemicals, electronics, pharmaceuticals and medical devices for a multi sectoral bi-lateral trade with U.S.A. Tariff on motor cycles and Bourbon Whisky have been cut already.
India, at the same time is trying to counter a negative perception in U.S.A. that India is a high tariff nation.

Piyush Goyal, Commerce & Industries Minister is already in USA for this purpose but it is regretted to convey that after his extended stay, he had not been given an appointment with the U.S Commerce Minister.

European Union, U.K & India

European Union happens to be India’s largest trading partner. To enhance trade relations, not only it has set up E.U.-India Trade & Technology Council, but the recent visit to India by Ursula van der Leyen, President of E.U. is bound to further cement the relations. Negotiation for a Free trade agreement has been resumed. E.U. may be prompted to relax non-tariff barriers for Indian goods. India, in turn is willing to reduce tariffs on E.U.’s key requests like automobiles, pharmaceuticals, wines and whiskies, depending on reciprocal concessions.

Apart from E.U., India is prioritizing a Free Trade Agreement with U.K. to expand exports and boost trade and investment by reducing tariff and non-tariff barriers and improving access to market. Talks begun in 2024 are still going on. One Bilateral Investment Treaty (BIT) between two countries too has been proposed. It will help promote and protect investments in each other’s countries. One key gain will be mechanism for settling disputes.

India, has also resumed trade negotiations with New Zealand and some other countries. New Zealand P.M.is scheduled to visit New Delhi soon for this purpose.

TO SUM UP

According to a leading national daily, Trump’s on- again, off-again tariff threats against India and key trading partners, Canada, China and E.U. have accelerated trade war fears. It has the potential to hurt consumer confidence, raise prices and slow down business investment. Neither transparency, nor element of cohesion is being reflected in any of recent tariff announcements of U.S.A. It is high time, W.T.O. intervened.

President of E.U. too has deeply regretted latest announcements of Trump. According to her, tariffs are taxes, they are bad for business and worse for consumers. Not only jobs will be at stake but prices will also go up.

It is surprising to note that none of the affected / targeted countries have approached W.T.O. thus far against the erratic attitude of U.S.A. After all, WTO’s mandate is to work for reduction of tariffs and to resolve disagreements and disputes.

With the change of guard in Canada, Trump may not succeed in eying its resources and land any longer. New P.M. has already hinted at using Canadian values. From China too, U.S.A. may face tough resistance, as former is expected to open its cards only after wait and watch.

(Alok K.Shrivastava is the former Chief Secretary of Sikkim)