Understanding Trade Dynamics and Policy Implications
Trade is Not Free
Dani Rodrik, a Harvard economist, and Robert Lighthizer, former US Trade Representative, emphasize that trade is never entirely free and is influenced by regulations, costs, and strategic interests. While free trade aims to mimic frictionless markets, real-world trade involves various impediments.
The Role of the World Trade Organisation (WTO)
The WTO was established to facilitate smooth trade and penalize countries violating the rules-based system. However, this system has been undermined, notably by the US, leading to a dysfunctional dispute settlement body since 2019.
Unilateralism and Its Consequences
- Jagdish Bhagwati criticized US trade policy, particularly its aggressive unilateralism, which risks trade wars and destabilizes global trade.
- The US has bypassed multilateral frameworks, imposing tariffs on countries like China, Mexico, and India, akin to settling disputes by force rather than established processes.
Impacts of US Trade Policies
The Trump administration's actions led to responses from Canada, Mexico, and China, resulting in increased costs for US consumers and producers and affecting GDP.
India's Position and Strategy
India reduced tariffs on American imports, responding to US pressures. Despite having grievances, such as the removal of its Generalised System of Preferences (GSP) status and disparities in agriculture subsidies, India seeks to maneuver strategically in the global trade arena.
The Political Nature of US Actions
- US trade actions are more political than economic, focusing on "Make America Great Again" rather than efficient production of goods that other countries can produce better.
- Paul Samuelson noted the complexity of understanding comparative advantage, which remains a challenge in trade dynamics.
Opportunities for India
India views the current trade tensions as an opportunity to reform domestically and prepare for future free trade agreements with the UK and EU. This aligns with India's goal of becoming a developed country by 2047.
The content highlights the complexities and strategic considerations in international trade, emphasizing the need for balanced policies and opportunities for reform and growth.