US Trade Policy Under President Trump
US President Donald Trump has been vocal about reshaping trade policy by increasing tariff barriers, highlighting a long-standing belief that the US has been disadvantaged by the current trade system. During his previous term, Trump weakened the World Trade Organization (WTO) and renegotiated the North American Free Trade Agreement (NAFTA), while withdrawing the US from the Trans-Pacific Partnership (TPP), impacting the global trading system significantly.
Introduction of "Reciprocal Tariff"
Trump recently announced plans to implement a “reciprocal tariff” on imported goods, aiming to match tariffs that other countries impose on US goods. This approach threatens to destabilize the existing global trade framework, notably affecting countries like India.
- The concept of “reciprocal” tariffs is ambiguous and awaits interpretation by the US trade bureaucracy.
- The appointed commerce secretary is tasked with analyzing major US trading partners by April 1, following a presidential memo.
- The analysis will consider average tariffs on US goods, including value-added taxes and non-tariff barriers.
Potential Impact on Global Trade
This approach risks violating the Most Favoured Nation (MFN) principle, which prohibits discrimination among trading partners, as enshrined in the WTO system.
- The MFN principle facilitates effective world trade by ensuring reciprocally negotiated privileges extend to all trading partners.
- Abandoning the MFN principle, as suggested by Trump's reciprocity focus, would complicate trade systems and require stringent rules of origin investigations for each shipment.
Implications for India
India might need to reconsider its trade strategy, which currently focuses on adjusting tariffs for specific imports, to cope with potential changes.
- Trade officials may need to explore strategies to uphold the multilateral system and apply collective pressure on the US.
- Joining international trading blocs like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership could provide a solution.
