War and Peace in Trade Zone

Asoke K. Laha
President & MD,
Interra IT

Amongst a set of peace-loving people, the word “war” is something like letting loose a cat among pigeons or perhaps a bull in the proverbial china shop. One can imagine what would happen if the pigeons fail to use their inherent strength of taking to wings. Trade war may not be as sinister as a bloody war; yet it can cause insurmountable problems. One has to really fathom the implications of  trade war. Does it mean the war is fought in the marketplace? Does it have any rule? Does it mean the winner takes all? Can countries involved in war engage themselves and still fight among themselves? I am not entering into a debate on the nuances of trade war, though I am sure the posterity may well define this phenomenon to decipher what is trade war or what is not.

Reports indicate that the recent trade war is escalating by every passing day. Countries after countries are entering the arena and the war zone is expanding. The ammunition here is only one thing and that is clamping on import duty. How did it originate? It has its origin in the unilateral imposition of additional import duty by the US on goods imported from its trading partners that include China, EU, next-door neighbours Canada and Mexico and, of course, India on two goods – steel and aluminum. 

President Trump, during his election campaign in 2016,  talked about ending the unfair trade practices which result in large trade deficits with all major partners, e.g. Mexico, Canada, EU, Japan and, of course, China. US business has shifted the manufacturing base to other countries like China,  Mexico, Canada because of lower cost of manufacturing in those countries.  The manufacturing products are imported back to the US at no or minimal import duties. The US businesses  are making huge profits,  while the middle class in the US has disappeared, meaningful jobs have shrinked,  and trade deficit has increased, resulting in increasing budget deficits.  The candidate Trump vigorously wanted to bring manufacturing jobs back to the US,  by increasing import duties.  President Trump is following what he promised in his campaign.  

I can very well understand when a newspaper column says that the present war is fought for scoring brownie points by the Trump administration in the forthcoming November by-elections, where the ruling Republicans want to consolidate its position.

Then, my question is that, if President Trump finds that the “trump card” trade war and America-First fail to  muster the required support, will he abandon the well-orchestrated trade war and adopt the peace route for seeking another term when the present term ends? All these are hypothetical narratives. My conjecture is that President Trump will sign the  revised trade agreements with each of the trading partners which are beneficial to the US. 

Through the trade war, the US is addressing only  two countries, which can be their potential rivals in trade, technology and geopolitical positioning – China and Russia. China, even to the bitter critic, is a power to reckon with. In the last two decades, the progress that the country made in various avenues, be it economic, military, aerospace, healthcare, technology, IT and what have you, would pale any economy into insignificance. It has a huge market and spreading its might across geographies. Chinese investments in the near and far-off countries are growing along with its clout. Africans consider Yuan, the Chinese currency, is as strong as dollar and they build reserves of that currency along with dollar. Chinese investments have perked up in diverse sectors like ports, roads and highways, IT, technologies, etc, while the US and EU investments have dried up, across geographies  of late. From Latin America to Africa to  South Asia, including Sri Lanka, Bangladesh,  Nepal, Maldives and even India, Chinese investments are pouring in, since  they are coming with less conditions and almost nil strings. 

There are some big statements that China has made recently. One is relating to its intention to become the most dynamic economy in the world, surpassing the Western economies put together. Secondly, its intention is to become the most technology-savvy economy in the world. To realize, it is evolving many programs and projects, particularly in relation  to artificial intelligence, robotics, medicines, aerospace and the list is unending. China knows how to walk the talk. Its commitment to build the most elaborate trade and economic corridor linking Pakistan, Afghanistan, CIS and Russia is the most glaring example. Billions of dollars have already been spent on this project and several billions would follow to complete the project in time. It is getting tacit support from countries like Sri Lanka, Nepal, Bhutan, etc since those countries also gain considerably from the Chinese grandiose project of one belt one road linking landlocked and island countries with a network of ports, rails and other modes of transport.

The technology leadership of China would not have gone well with the Western countries, especially the US, which was till date glowed as the unstinted technology leader, and China was more known for reverse engineering the technologies originally  developed in the West. Many feel that the current trade war is more borne out of a threat perception  on the technology domain than in the trade front. 

On the positive side, China has an expanding economy unlike in the West, which are  saturated. China can still boast of demographic dividend and most of its citizens are in the productive age group and that advantage would accrue for some time. About the liberalized economy, protagonists of China observe that the country is as reformed as any other country. In the Ease of Doing Business, a World Bank-monitored barometer for measuring business ecosystem, China is way ahead. 

Arguments and counterarguments apart,  there is a gainsay in telling that China has  a long way to go as an open economy, where freedom of expression and human ingenuity are allowed in as liberal way as in the western countries. 

What was China during a few decades back and what  it is  now, there could be a world of difference. Its democracy and rule of law have not transcended the experimental stage. To really catch up with the developed world, it has to build   democratic institutions, ensure freedom of expression and a free press. There is no short cut to that. It has to progressively move from a closed society to an open one. There should be qualitative changes in its governance structure. In the process, in many areas it has to come clean by unlearning and learning. Indeed, it is a painstaking process and time consuming. 

Coming back to the central point of trade war, it is not the question who wins or who loses. It is for the world superpowers to recognize that war is not a solution for anything. It is negotiations and accommodations that can instill confidence in the system and not the path of war, which puts forth the atavistic instincts in the forefront and not the sublime ones. I do believe that  there will be prolonged negotiations  and agreements which will be beneficial to all trading partners, including the US.