Font size:
Print
America’s Trade Wars: Will India Be the Next Target?
Context:
The United States has historically used trade wars to protect its economic dominance. After targeting Japan and now China, India’s growing economic footprint, especially in pharmaceuticals and IT services, could soon attract similar attention. Experts suggest that India must be prepared for possible US trade actions and should strategise to secure its position in global trade.
From Japan in the 1970s to China Today: The Shifting Focus of US Trade Wars:
Political Modernisation Theory and Changing US Expectations
- Political modernisation theory suggests that as economies develop, they tend to adopt democratic values and openness to trade.
- In the 1990s, the US believed that integrating China into the global economy would lead it toward these values.
- However, China’s rise without adopting Western political norms has challenged this view, leading the US to revert to protectionism and prioritise trade policies that defend its own economic interests.
- Rise of Japan and its containment: In the 1970s, Japan’s success in electronics and automobiles led the US to accuse it of unfair practices, like state support and intellectual property theft.
- Shift towards China:This marked the start of the US using trade wars as a tool to maintain its economic lead.
- Today, the US’s focus has shifted to China, which has become a manufacturing powerhouse and independent rival, especially in high-tech sectors.
- Difference between Japan vs China Policy: Unlike Japan, which depended on the US for security, China stands as an independent technological competitor.
- The current trade war with China is thus less about deficits and more about technological dominance.
Need for US Trade War with China :
The WTO’s Diminished Role in US Trade Strategy:
- The World Trade Organisation (WTO) once supported US interests by enforcing a rules-based trade system, but recent US administrations see it as an obstacle to imposing tariffs unilaterally.
- Under Robert Lighthizer, the former US Trade Representative, the US weakened the WTO’s dispute resolution mechanism by blocking the appointment of judges, allowing it to pursue tariffs without WTO intervention.
US-China Trade War: A Technological Rivalry Beyond Trade Deficits
- The US-China trade war has evolved beyond mere trade deficits into what some describe as “technological warfare.”
- The US seeks to counter China’s advancements in high-tech industries like AI, telecommunications, and semiconductors, viewing these developments as a threat to its technological leadership.
- This focus on technology rather than trade balance suggests that the US may extend similar measures to other tech competitors in the future, possibly including India if its technology and services sectors continue to grow.
India’s Potential Vulnerable Sectors: Pharmaceuticals and IT Services:
Robert Lighthizer’s US Trade Representative (USTR) under the first Trump administration Policies: A Move Toward Protectionism
- Protectionism: Robert Lighthizer, a known protectionist, believes free trade harms local jobs and industries. During his tenure, India lost its Generalised System of Preferences (GSP) status, affecting $5.7 billion in exports.
- Weakening the dollar: His approach includes weakening the dollar, a tactic used in the 1985 Plaza Accord against Japan to make imports more expensive.
- If Lighthizer returns to influence trade policies, India’s competitive sectors, especially pharmaceuticals and IT services, could be impacted by similar protectionist policies aimed at defending US industries.
- India’s success in the pharmaceutical and IT service industries puts it in direct competition with the US, making these sectors likely targets in a new wave of trade actions.
- India’s trade surplus with the US has doubled from $25 billion in 2019 to $50 billion in 2023, potentially drawing US attention to these competitive sectors.
- Abhijit Das, a trade expert, suggests that the US could impose tariffs on these industries, using claims of intellectual property issues or market imbalances as justification.
Why India’s Case Differs from China and Japan:
- While Japan was an ally dependent on the US for security, and China a self-reliant technological rival, India’s position is unique. India generally adheres to a rules-based trade order and collaborates with the US on strategic matters.
- However, this cooperation may not shield it from US scrutiny if its growth challenges American interests.
- India’s balanced approach and strategic alignment with the US may moderate trade tensions but might not eliminate them entirely if India’s sectors become too competitive.
India’s Possible Retaliation Strategies: Tariffs and WTO Engagement
- Tariff: India has shown its capacity to respond to US tariffs. When the US imposed tariffs on steel and aluminium, India retaliated with tariffs on US agricultural products, ultimately leading to a settlement under the Biden administration.
- WTO Reform: If further US trade actions arise, India could employ similar tactics, using tariffs as leverage in negotiations. Additionally, India could advocate for WTO reforms to support a rules-based trade system that protects the interests of developing countries, thereby counterbalancing the unilateral trade actions of larger economies.
