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Trade war spectre: India should keep a low profile, let economic heavyweights slug it out

A series of protectionist economic measures last week signalled the start of a dangerous phase for the global economy. US President Donald Trump raised import tariff on steel and aluminum to 25% and 10% respectively. He also said the US would do a “reciprocal tax programme” at some point naming, specifically, India along with China in this regard. At this juncture, India must play its cards carefully and keep a low profile. Moreover, it must avoid being clubbed with China at all costs.


The US tariff order provides exemptions to its allies. Canada and Mexico got an exemption at the outset and others such as Australia may also benefit. The US tariff for steel does not significantly impact Indian exports. But the threat of a “reciprocal tax programme” is dangerous; among other things, it would tear up WTO rules which have enabled the global economy to prosper.


Next week, following an Indian initiative, ministers of around 40 countries are to meet in New Delhi to find ways to break the trade deadlock at WTO. But it is unlikely to achieve much given protectionist trends today. New Delhi must prepare to engage with this new situation. A smart strategy would be to let economic heavyweights like the US, the European Union (EU) and China slug it out and allow the dust to settle, instead of taking up an activist position. Alongside, New Delhi can revive stalled negotiations for free trade agreements such as the one with EU. India is a trade midget and would be on the losing side of a trade war with, say, the US. But if the US manages to change China’s mercantilist approach that wouldn’t be a bad outcome from India’s point of view; after all, Beijing imposes stiff barriers to Indian imports too.

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