Insights into Editorial: Global village: The future of international trade
American President Donald Trump, since assuming office, has consistently shown a dislike—both through words and policies—towards immigration, Islamic fundamentalism and trade protectionism by foreign states.
The Trump administration has, beginning 2018, imposed fresh import tariffs on a number of countries spanning the globe. The countries include China, India, Canada, Mexico and a few others.
Aggressive protectionist measure:
Many authors and global observers have labelled this aggressive protectionist measure as yet another evidence of Trump’s ultra-nationalism.
China, India and Canada are amongst the countries that have decided to counter the new US tariffs in kind.
For instance, India has hiked the import tariff on as many as 30 American goods after the metals including steel and aluminium from India were subjected in March 2018 to tariff hikes by the US.
The Indian government has repeatedly confirmed that the hike was in order to maintain the balance in trade with the US, and also to recover additional duty.
In addition, many other countries have decided to revise their tariffs on American goods.
Global Trade since 17th century: Industrial Revolution
The rise of the global trading system as seen today, like many features of the modern world, began largely with the Industrial Revolution.
Technological advances in the form of transportation—from ships, railroads, automobiles to airplanes—and the internet steadily reduced the cost of transporting goods, technology, capital and people around the globe.
This “death of distance,” a modern-day metaphor, has been one of the most important forces shaping global economic development since the inception of Industrial Revolution.
These technological forces were further supported by structural forces, facilitating and cushioning the rise of a globally integrated market.
Globalisation has seen it all, right from the presence of the gold standard, the dense web of bilateral trade agreements to the advent of new multilateral economic institutions.
Failure of Global trading systems:
Global trading system such as General Agreement on Tariffs and Trade and World Trade Organization were never designed to block a major world power from running amok. They relied on the principal players in global trade respecting the system.
The WTO Dispute Settlement Mechanism has failed to act quickly to address the mounting spats about trade protectionism emanating from the U.S. – a major reason why countries around the world have not waited for verdicts from their WTO complaints and have instead proceeded with retaliation.
Present scenario in world trade policies:
At present, the Trump administration, more than any other country, is taking a particular interest in China—for good reason. The prominent view of the Trump administration is that the American economy has suffered greatly due to “unfair trade practices” and state-sponsored “Intellectual Property Theft” by China.
Although there is a temporary push back against globalisation, the global economy is expected to grow, as the global markets and their prosperity are too intertwined to unwind.
In the short term, we may see a deeper focus on proper enforcement of current trade agreements and concerted efforts to make them balanced from all sides. We may also go for a close review or perhaps a restructuring of the governance system within the WTO.
Another interesting scenario would be the extent of motivation for US firms to stay in the domestic market and encouragement for foreign firms to set up their base in the US, amid growing protectionism.
The long-term scenarios seem intentionally vivid and provocative and are expected to not only spark debate about the future of world trade among policy-makers and the wider trade community but may also change the global structure on the basis of availability of resources and the willingness of global organisations to coordinate their actions.
Today, to overcome current challenges and growth barriers and maintain sustainable trade, countries may go beyond the neoclassical theories to one-on-one partnership models.
They need alliances across industry sectors and value chains, and these include their competitors and peers too. Even market leaders cannot make the necessary impact acting alone.
In this context, industry may undergo a silent revolution in order to adopt a completely different approach that will lead to the path of long-term trade development in the form of accrued benefits such as adjustment of global economies to technological innovation, new production schedules and changing competitive patterns, thus raising productivity levels.
All these trade reforms, if undertaken, will yield substantial economic benefits, but sustaining the momentum will be a key challenge as the consequences of this trade liberalisation will be associated with societal and economic adjustments, such as regional and sectoral disparities, and urban migration.
Institutions attached to labour markets need to be strengthened to enhance labour mobility and their skills. The government would need to ensure that the possible gains from trade reforms are shared by a wider segment of society.
The only big question is, whether political will for market openness will be maintained or whether protectionism and inward-orientation are going to gain an upper hand?
The need of the hour is to explore the relationship between comparative advantage and optimal trade policy, and to understand, how the consequences of populist politics, economic dislodgement and technological alterations are going to impact the future of global trade.