Protectionism isn’t good news
Deterioration in the liberal economic order will hurt India
Donald Trump has been indulging in trade brinkmanship that could either bring China to the negotiating table or wreck the multilateral rules that have served the global economy so well. He has slapped higher tariffs on items such as steel, aluminium, solar panels and washing machines. He has blocked the proposed sale of chip maker Qualcomm to
Singapore company Broadcom by arguing that the spending cuts the latter will impose will help Chinese competitors such as Huawei steal a march in 5G telecom technology. Trump has argued that he has done all this to protect US national interest.
There is no doubt that China has used its commercial expansion to further its strategic interests. Even an ardent defender of the liberal global order such as German chancellor Angela Merkel has recently expressed concern about Chinese investment in Europe. China is not a regular market economy. A lot of its investment should be seen part of its broader geopolitical game plan. Trump has been playing on these fears as well, and a retaliation by the Chinese could turn on the heat further.
What should India be doing? The first reaction could be that anything that restricts China should be welcomed. However, premature celebration would be unwise since any deterioration in the liberal global economic order will hurt India in two ways. First, there is no guarantee that India itself will not become a target of such protectionism through higher tariffs. Second, the desired thrust to enter the global manufacturing game cannot be successful unless India can plug into the web of supply chains based on easy movement of intermediate goods across national borders. It is sobering to remember that the Trump administration has made occasional noises against India as well or the pressure on Prime Minister Modi to cut import duties on Harley Davidson motorcycles brought into India. Indian strategists need to figure out how to respond to the mounting trade tensions between the two largest economies in the world — and protect Indian national interest in what could very likely be a period of great uncertainty.