"Around 23 years ago, the General Agreement on Tariffs and Trade (GATT) was refurbished as the WTO with almost every country in the world joining the organisation. As per agreed norms, trade tariffs amongst member countries are reduced through negotiations and the agreed rates applied uniformly to all trade partners. However, China which joined the organisation in 2001 does not adhere to these rules. It shakes down foreign investors for technologies it fancies besides giving subsidy to its own industries."

Around 23 years ago, the General Agreement on Tariffs and Trade (GATT) was refurbished as the WTO with almost every country in the world joining the organisation. As per agreed norms, trade tariffs amongst member countries are reduced through negotiations and the agreed rates applied uniformly to all trade partners. However, China which joined the organisation in 2001 does not adhere to these rules. It shakes down foreign investors for technologies it fancies besides giving subsidy to its own industries. While there are enough reasons for penalising China for flouting multilateral trade rules, through overproduction, dumping overseas and excessive restrictions on market access, however, the primary loser from this trade war is likely to be the American consumer as the hypothetical benefits of more manufacturing jobs will negated by the higher prices that the consumer has to pay.

China’s advantage over the US

It’s common knowledge that China grants vast and opaque subsidies to its state-owned firms. The US is therefore, right in demanding fair play. Its now looking to force manufacturing supply-chains back to America and has identified China as a strategic competitor. The White House may interlink China’s abuse of rules; the trade deficit and the decline of American industry. However, this is not the case. Even without subsidies, China, like most other emerging markets, would enjoy a substantial cost advantage over the US.

Altering the global business map

The trade war is altering business equations amongst nations. According to the IMF, in 2017, EU exports to Asia were bigger than those to the US. While Asia’s exports to the EU are growing fast, making the Union increasingly more important to Asia. China is now the largest market for an expanding list of countries, including Australia, Brazil, Russia, South Africa, South Korea and Indonesia, among others.

Indeed, if the current growth rates of imports in the US and China hold in the next few years, by 2021 China will surpass the US to become the largest market for imports in the world, according to the IMF. Against this backdrop, Trump’s trade war is creating new impetus for the EU and Asia to speed up opening their markets to forge closer economic ties.

Need to expedite India-EU FTA

India’s exports and imports of goods and services is around 42 per cent of its GDP. Any trade war is thus likely to have implications for the country. Turkey recently imposed a 21 per cent customs duty on Indian products. Additionally, local value addition of 51 per cent in case Indian companies wish to sell their products in Turkey, forces them to create capacity in a sub-optimal manner by investing significantly in the local country.

The trade barriers that Indian textile companies face pose obstacles in their access to some of the most important markets. For over four decades, Indian manufacturers designed their production, investment and sourcing strategies around the assumption that the movement of goods across the world’s borders would continue to grow ever freer. In the process, many of them built complex, intricately linked and cost-efficient supply chains that span the globe. The US and EU markets absorb about 60 per cent of the Indian output in apparel. The country, therefore, needs to expedite an FTA with the EU.