Trump’s trade terror tactics

Hundreds of millions of the world’s poor could be badly hit by Donald Trump’s distorted vision of the global economy and trade.

Last month, United States President Donald Trump abruptly ‘reclassified’ over half a dozen nations in terms of their economic status. Overnight, countries like India, Brazil, Indonesia, Thailand or Vietnam were no longer developing nations but instead were ranked alongside the United States, Switzerland or Japan as developed nations.

As with almost every other utterance or decision of Donald Trump, the latest salvo on the global trading system is not only entirely erroneous, but also yet another attack on the global trading system that has already been wrecked for almost a decade, with countries, notably the United States, flagrantly violating its rules and principles.

With his America First (and America Only) vision, Trump has been railing against practically the entire world for what he claims, rather facetiously, have been the historic injustices against a US that is the only country to have played fair by the rules, while the entire world has been cheating and becoming richer at the cost of the US.

This Trumpian ‘truth’ was the primary reason why he went for a complete overhaul of the NAFTA trade deal with Canada and Mexico and also the driving force behind his trade war with China that has already lasted over a year. Having obtained, at least partially, what he had sought from China, Trump has now begun targetting other large economies, notably India, Brazil and Indonesia.

Since July last year, he has been railing against the World Trade Organisation, the body that was created to govern global trade and mediate in case of disputes, but which has been completely crippled by Trump as he has blocked the appointment of adjudicating officials, thus rendering the WTO entirely ineffective. Trump says, again falsely, that the WTO rules have hurt the US while helping countries like India and China to develop rapidly. He said that the fastest growing economies like these had grown at the expense of the US and hence did not need any more special provisions or treatment that is currently accorded by the WTO agreement, notably the Generalised System of Preferences that allows developing countries easier access to rich country markets. To identify the ‘developed’ nations, Trump pulled, out of thin air, some bizarre standards, such as membership of a body like G20, a group of the world’s 20 largest economies and nations, or if the share of a country in global trade exceeded 0.5 pc.

In January, at a press conference with the WTO director general Roberto Azevado at his side, he said that the US would ensure that the WTO is overhauled to reflect the ‘changed’ realities of the global economic order. Azevado, perhaps keen to be on the right side of Trump in order to have the US agree to the names of judges for the WTO dispute settlement bodies, agreed that the WTO needed to be updated in view of the changed realities of the world.

While this may be true for a nation like China or some south-east Asian economies that have indeed gained tremendously from globalisation, but the argument holds little water in case of a country like India, Indonesia or Brazil. Yes, these are large countries and by sheer size their weight age in global trade exceeds 0.5 pc or have membership of bodies like the G20. Yet, there is hardly any justification for putting India in the same bracket as say the US or even Poland, the most recent addition to the developed country grouping of the FTSE in London.

Surely, Trump does not need to be reminded that with 350 million people struggling for two square meals a day, India is home to half of the world’s poorest people. India’s per capita GDP is just over USD 2,000, while it is over USD 65,000 for the US. On a number of Human Development Index indicators, India is unfortunately in the bottom quintile of the world’s nations such as malnutrition, child mortality and access to education and health. Thus, calling India a developed nation is not unfair, but indeed cruel.

The worst part in the entire equation is that the US does not stand to gain much, if anything, at all by such reclassification. India’s GSP treatment got it only USD 190 million in reduced import taxes from the US market, a fraction of the total Indian exports of USD 84 billion and less than 0.0009 pc of the GDP of the world’s largest economy. The story is hardly any different vis-à-vis Brazil, Indonesia or even Thailand, Vietnam and Malaysia.

In India, Trump is seeking a totally open market, notably in agriculture, while asking India to copy US rules on intellectual property in order to help the infamous Big Pharma of the US get a grip over the large and promising Indian healthcare market where currently the Indian generic producers rule the roost. Trump would also want India to loosen up its rules on data hosting in order to favour big Tech of the US.

These, and other key demands of the US, figured in the draft US-India Free Trade Agreement that Trump was hoping to sign during his visit to India next week. However, for now, the ambition has been set aside as Indian and American negotiators have been unable to reach any agreement.

Difficult it may sound, but India needs to stand firm in its position vis-à-vis not just the US but the other developed country club, the European Union, which is also pushing India to open its markets. Trump seems to have tasted blood by getting Canada and Mexico to kowtow to his demands, however unreasonable they may have been, and he also has had a measure of success against China.

But while the NAFTA partners of the US or China maybe in a much better situation to be able to withstand the impact of the new trade rules on their economies, India, which is already facing its worst economic phase in over a decade, cannot afford to unilaterally open its market, especially the farm market as over 850 million persons subsist on farming and have an average annual income of less than USD 1,500, again a fraction of what an American or European farmer would make in a month. Already, Indian IT exports to the US have been hit by Trump’s decision on visas. Now, it is time for India to hit and hurt the US economy in areas where it would hurt Trump as he goes on his re-election campaign.