Reshaping US Trade Policy under President Trump
The United States President, Donald Trump, has consistently expressed his intention to overhaul trade policy by significantly increasing tariff barriers. He believes that the US has been disadvantaged by the existing trade arrangements.
Previous and Current Actions
- In his previous term:
- Hampered the World Trade Organization’s dispute-settlement mechanism.
- Renegotiated the North American Free Trade Agreement (Nafta).
- Withdrew the US from the Trans-Pacific Partnership (TPP).
- Current plans:
- Intention to impose a "reciprocal tariff" on imports.
- Threatens the integrity of the current world trade system.
Understanding "Reciprocal Tariffs"
The concept of "reciprocal" tariffs remains vague. President Trump has directed his trade department to align US tariffs with those imposed by other countries, including value-added taxes and non-tariff barriers. This approach could undermine established trade practices.
Potential Implications
- Risk of violating the Most Favoured Nation (MFN) principle, a cornerstone of global trade that ensures non-discriminatory treatment among trading partners.
- MFN principle simplifies trade by extending negotiated bilateral benefits to all WTO members.
- Abandoning MFN could necessitate verifying rules of origin for each shipment, complicating trade.
Impact on India and Global Trade
India’s current strategy of adjusting tariffs for specific imports may be inadequate. Trade officials need to consider mechanisms to sustain the multilateral trade system and exert collective pressure on the US.
Possible Solutions
- India and other countries might consider joining trading blocs like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to counterbalance US policies.