Comments on Trump's Trade War: An Indian Perspective

Abstract

Sungbae An, Korea Institute for International Economic Policy: Rising protectionism throughout the world---Trump's trade war in particular---has materialized in multiple dimensions: tariff hikes, non-tariff barriers, and disrupting multilateralism. It raises considerable concern among experts and blows up uncertainty, both of which delay consumption and investment and result in the recent global growth slowdown. The work by Athukorala summarizes the development of the U.S.--India trade dispute, including changes in the trade policy stance of both countries, and investigates economic impacts on India of new tariff measures and the Generalized System of Preferences (GSP) abolition by the United States. Negative impacts are found on steel and aluminum exports from the tariff hike according to Section 301, but the GSP abolition is expected to a larger and significant impact, especially on the traditional labor-intensive industries.With the increasing strategic importance of India to the United States (e.g., the Indo-Pacific strategy) and the prolonged participation in the global production network by India, the existing preferential market access was anticipated to continue, but it turned out not to be the case. In retrospect, the priority of the Trump administration is in trade imbalances rather than alliance. The first things that Trump announced after his election included the Trans-Pacific Partnership withdrawal and the North American Free Trade Agreement renegotiation. Japan, one of the most important allies of the United States, also faces tremendous pressure for fair trade. In Korea's case, the Korea--U.S. Free Trade Agreement update was signed within one year of Trump's inauguration.A new approach to deal with the United States has been attempted by Korea and Japan, mostly focusing on reducing the trade surplus via purchasing energy (e.g., crude oil and natural gas). Through shale fracking innovation, the United States is now the world's largest oil producer and has become a net exporter of crude and petroleum products. Figure 1 shows the recent crude oil imports (HS code starting with 2709) of Korea and Japan and the United States' share of total crude oil imports. The U.S. share meaningfully increases during the Trump administration in both countries.India's crude oil imports are larger than those of Korea and Japan; hence, India can utilize the leverage in negotiating trade disputes with the United States. It is also beneficial to India to diversify the source of energy imports. As can be seen in Figure 2, more than half of crude oil imports relies on Middle East countries. As Foreign Secretary Vijay Gokhale told the media on September 2019, ``energy, of course, is the new component in the Indo--U.S. trade mix.''1