NEW DELHI: US President Donald Trump kicked the proverbial hornets’ nest late Thursday evening, following through on poll promises to correct the US trade deficit. His announcement on imposing steep import tariffs on steel (25%) and aluminium (10%) was met by tanking stock markets from Japan to Europe, as world leaders issued threats of retaliation and fears of an imminent global trade war spiked.
Trump's combatative tweets calling a trade war "good" and "easy to win" in the aftermath of his announcement only added fuel to the fire. "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!" the US president tweeted.
The news was worst received by US allies, with strong statements issued by the European Commission and Canada, two of the largest steel suppliers to the US. “We will not sit idly while our industry is hit with unfair measures. The EU will react firmly and commensurately to defend our interests,” European Commission President Jean-Claude Juncker warned.
Through Friday, Asian and European markets fell sharply, with the Japanese Nikkei 225 (-2.5%), German DAX (-2.01%), French CAC 40 (-2.14%) and Hong Kong-based Hang Seng (-1.48%) the worst affected. Canada, EU, South Korea, Mexico, Brazil, Japan, Taiwan and China are top eight steel suppliers to the US.
The immediate impact on India is likely to be negligible, however, with Reuters reporting Steel Secretary Aruna Sharma saying, "we have only 2 per cent of our exports to US so no immediate dent..." Indian stock markets were also closed on Friday for Holi and will not open until Monday, giving Indian investors more time to assess the situation.
But, India will have enough to worry about if a global trade war erupts. Economists have consistently red-flagged protectionism as a risk to reviving global growth, which in turn is a key driver expected to propel Indian economic recovery. A Crisil report released on Thursday, for example, highlighted “flashpoints in trade policies” as a key risk to Indian growth estimates for 2018-19.
Trump’s Thursday announcement is also only the latest in a series of worldwide protectionist moves. China has already embarked upon anti-dumping probes into US sorghum supply, while Trump has been vocal on India’s own import tariffs on motorcycles being “unfair”. The US on Thursday also started an investigation into whether Indian producers of PTFE resin (a polymer with widespread applications) were receiving unfair government subsidies, which could lead to higher import tariffs on the segment.
India too has embarked upon a general trend of increasing customs duties, with Finance Minister Arun Jaitley's Union Budget this year proposing several duty hikes on imports -- from food processing and electronics to auto components, footwear, and furniture. "I am making a calibrated departure from the underlying policy in the last two decades, wherein the trend largely was to reduce the customs duty. There is substantial potential for domestic value addition in certain sectors," Jaitley had stated.
More recently, India's decision to raise import duties on pulses irked trade partners like Canada, Australia, the EU and the US, who raised the issue at the World Trade Organisation last month.