America’s shifting trade battles
Source: By Ravi Dutta Mishra: The Indian Express
China’s rapid economic growth as a manufacturing powerhouse and key global exporter over just a few decades has lifted millions in that country out of poverty without following the Western-led political-economic order. However, the battle for global dominance has brought trade wars to its doorstep, as the US, during Donald Trump’s first term in the White House, abandoned the principles of free trade it once championed.
With China’s annual trade surplus expected to soon surpass a record $1 trillion, groundwork for a more aggressive US trade war against China during Trump’s second term—backed by a Republican-controlled Senate—has begun to take shape. Robert Lighthizer, a staunch protectionist and the architect of Trump’s tariff battles, is reportedly set for another attempt at pursuing Trump’s frequently cited trade goals of reciprocal market access.
Behind Trump’s populist narrative of targeting “cheap” Chinese exports, which earned him significant electoral gains, lies an old playbook the US has used before in its quest for economic dominance. In the 1970s, the US launched a remarkably similar trade war against Japan, levelling charges such as “state support”, “intellectual property rights theft” that are now being applied to Chinese products, as Japan emerged as a threat with brands like Sony and Toyota beginning to dominate global markets in consumer electronics and automobiles.
Trade economists suggest that while China may be Trump’s primary target—which could benefit India due to its strategic position in Asia—it is in India’s best interest to advocate for reform at the World Trade Organization (WTO) and play an active role in preserving a rules-based trade order to safeguard its future growth. Experts caution that an immediate threat looms over India’s pharmaceutical and services sectors, where the US and India are close competitors.
Significance of Lighthizer’s second term
Lighthizer’s appointment as the US Trade Representative (USTR) under the first Trump administration, and potentially in a similar role for the man in the new second term, could signal that a Trump-led trade war aimed at bringing manufacturing jobs back to America would become the new trade priority, with all countries, including India, potentially in the crosshairs. Notably, under Lighthizer’s leadership, India lost its Generalized System of Preferences (GSP) status in 2019, which had benefited $5.7 billion worth of Indian exports to the US.
A staunch protectionist, Lighthizer has long argued that America’s liberal trade policies—pursued after the 1989 collapse of the Soviet Union in the hope that democratic, free-market capitalism would spread globally, even to Communist China—were misguided. Lighthizer believes that while free trade enables easier imports and boosts corporate profits, it leads to job losses that ultimately harm local communities.
To achieve his goals, the former trade chief suggested in his 2023 book, ‘No Trade is Free’, that the US should weaken the dollar relative to other currencies—a measure implemented in the 1985 Plaza Accord to address its widening trade deficit with Japan and other trade partners. While the US had managed to halve its trade deficit in the years following the Plaza Accord as Japanese imports became expensive and uncompetitive, Japan’s economy suffered significant long term negative effects from the deal.
Lighthizer, a former attorney who spent decades helping US manufacturing companies seek tariff protection against unfair competition, also believed that the WTO had become detrimental to the US, as it restricted America’s sovereign right to protect its industries through tariffs. In 2019, he effectively disabled the WTO’s dispute settlement body by blocking the appointment of judges necessary for a quorum, allowing Trump to impose tariffs on countries without repercussions from the apex trade body. Trade experts say that the bending of trade rule by the rich countries for global dominance could hurt developing nations such as India.
India in the Crosshairs
Abhijit Das, an expert on international trade and former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade (IIFT), said that Trump’s second term could see a ramp-up of actions violating WTO rules, and that tariff retaliation might be India’s only effective means of responding to any additional tariffs imposed by the US. This approach proved successful when India raised tariffs on US agricultural products in response to US tariffs on steel and aluminium. A settlement was reached under the Biden administration.
Das said that the US trade war against China is less about trade and more about trying to contain China’s technological ascendancy, particularly in high-tech sectors. “There will, of course, be consequences for India if the rules are flouted by the rich and powerful. Today, China is the target; decades ago, it was Japan, when Japan posed a competitive threat to the US. If the US perceives India as a competitive threat in certain sectors down the line, we may find ourselves in their sights. In fact, in pharmaceuticals, we are already on their radar,” he said.
“All the allegations made against China today are similar to those once levelled against Japan: inferior quality goods, intellectual property theft, dumping—nearly identical charges. The difference is that Japan relied on the US for security, whereas China does not. The US could bend Japan to its will, but it will not be able to do the same with China,” Das said.
Pharma & Services likely target
Ajay Sahai, Director General & CEO of the Federation of Indian Export Organisations (FIEO), said that Trump’s administration used tariffs as a tool to pressure trade partners into more favourable deals for the US and to protect domestic industries and this tactic could extend to various countries, including India, if the US perceives trade imbalances or unfair practices.
The increase in India’s trade deficit with the US, from $25 billion in 2019 to $50 billion in 2023, is likely not to Trump’s liking. Though a much smaller economy, India is managing a trade deficit of close to $100 billion with China. Trump’s past tariffs mainly targeted China, Mexico, Canada, and the EU, with limited impact on India,” he said.
Sahai added that under a potential Trump 2.0, there could be renewed pressure on India if trade imbalances are seen as harmful to US industries. The US might use tariffs to pressurise India on issues like intellectual property rights, labour standards, or digital trade policies.
“A broader tariff policy would affect sectors in which both countries compete, like pharmaceuticals, IT services, textiles, and steel. If tariffs were imposed on a range of Indian goods, it could reduce exports from key industries such as textiles, pharmaceuticals, gems and jewellery, and IT services, as the US is a major destination for Indian exports in these products and services,” he said.
Download PDF : https://drive.google.com/file/d/17hmAJZkzCVhwtCTLXwHIrsHS_LdsBBb9/view?usp=drive_link
