Trade War navigating towards ‘2008 crisis’

Now, expanding the horizon of a trade war, US president Donald Trump willing to target all time allies, like Canada. Due to this approach, global economy, which is just coming back on track since 2008 crisis, comes under threat and there is a danger of global economy may go back to 2008 crisis.

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On eve of G-7 conference, there was a twitter war between US president Donald Trump and France president Emanuel Macron. After Crimea crisis, in 2014 Russia was expelled from G-8 and the group was renamed as G-7. Now, Trump wants Russia to re-enter in G-7, but Macron doesn't want it and even dares to go ahead without the US, as G-6. While, expanding trade war against China, Trump has been targeting Canada and European Union. Trump is considering to raise the tariff on European goods and also, reconsidering NAFTA (North America Free Trade Agreement). Therefore, these six countries are concerned about Trump and US. In fact, Trump’s policies are not limited to these few countries, but, it will have an impact on the global economy. Since 2008 crisis, the global economy is just recovering and first satisfactory growth was recorded last year, since 2008. On this backdrop, World Bank, IMF, even US Federal Reserve fears, Trump's policies will create an adverse impact on the entire global economic system.

Since WW II, US has remained a focal point of global economy and each thing in US have repercussions on economies of other countries. Impacts vary from export-import to investment and finance. As China's economy started growing rapidly, it has become a challenge for US. Due to this challenge, there has been a certain amount of restlessness among Americans. Especially, a deficit in trade between US and China is a main concern for them. In 2016, there was trade deficit of $300 billion, in favour of China. According to statistics of US federal reserve, trade between US and China was $648.5 billion, which includes the export of $ 478.8 billion from China.¹ Trump took advantage of this restlessness to win the presidential election. During his election campaign, Trump was relentlessly pointing towards China’s unfair practices in Trade. He warned that when he becomes president, he would quit all trade agreements with China and pull China in International court for its unfairness. In fact, many analysts have shown, how China is unfair in Trade? How China controls currency and finance through its financial system, to keep the trade favourable to itself. It gives tax rebates for export, subsidies, turns a blind eye towards insecure goods and puts restrictions on imports. So, China gets benefits in trade with other countries and it keeps control on flow of Yuan and other foreign currencies. Some analysts say, China keeps rate of Yuan 25 per cent less than, what it should be exactly. But, in today's scenario, it could not be possible to cut off all relations or trade. Bush and Obama knew this inevitability and hence they always bat for China in US Congress. Once in Bush regime, some restrictions were imposed on trade with China, because of insecure products. But, Trump is a different person. When he resumed office, very first day he signed for withdrawal from Trans-Pacific Partnership. It was an initiative of 12 countries and it was about to begin its journey, but Trump got disturbed. Now, Trump wants to re-enter it² and asked officers to check, how it could be done? But, it is difficult to say, this re-entry will be a viable option.

In March, Trump announced 10% tariff on import of Aluminum and 25 % on Steel. He claimed it was for benefit of the local producers. But, US federal bank warned, it would not be beneficial for the US and it would lead for a dangerous road.³ Even, it is more harmful to Germany than China. Due to March decision, there is an excess tariff on Chinese goods of $50 billion. But, Trump threatened, it will expand for goods $100 billion more. After Trump, China reacted with the same way and increased tariff on US agro-product and other productions. Now, Trump wants to expand this tariff frame, which can cover European countries and Canada-Mexico too. Trump thinks Mexico and Canada get the excess benefit of NAFTA. He gave some examples like, Mexican Car producers have more benefits than US producers. So, he wants to replace this agreement. But, this decision may create new challenges in front of US economy. California, Arizona, New Mexico and Texas, four states of US share their boundaries with Mexico. The economy of these four states is highly dependent on the production of Mexico and Bilateral trade. According to US Economic Analysis Bureau,  GDP of these four state is $5 trillion and it is quarter of total US GDP. So, if trade with Mexico gets spoiled, then the economy of these four states and in effect, total US economy could not remain unaffected. So, Trump needs to think twice before replacing NAFTA.

In fact, global economy, including the US, is growing for last two years. Before the beginning of trade war in October 2017, there was a prediction that each part of the globe will witness positive growth. This report predicted 2.4% growth in Euro region, 1.2% in Japan, 6.6% in China and even 2.9% in the US.⁴ This was a first good sign since 2008 crisis. There was 4.7% growth in global trade, according to a report of WTO. But, this statistics may not match in 2018 and may settle on 4.4%, and in 2019 it may go down to 4.0%. This prediction didn’t think about a trade war. So, if trade war intensified, the situation may get spoiled and becomes adverse for trade-investments. This report includes this fear too.⁵ World Bank warns in some of its reports if we don't learn any lessons from this predictions, the world moves towards 2008 crisis with rapid speed. One of its reports says this situation of developing countries may be more dangerous than developed countries. According to this report, if the growth rate of US, China or European countries drops by a 1%, the growth rate of other developing countries will go down by 1.1% for one or two years.⁶ If the series of a rise in tariff goes on, the volume of global trade may drop by 9%. This situation is quite similar with the situation of 2008-09, said in another report.⁷

Along with huge trade deficit with China, the US to have a trade deficit with Mexico ($71 billion), Japan ($68.8 billion) and Germany ($ 64.3 billion).⁸ In comparison with these countries, the volume of US-India trade is not much. So, there is not much impact on India, because of US restrictions or any such decisions. But, India can't be unaffected, if the global economy is moving towards 2008 crisis. So, we have to consider the situation and keep watch on each of Trump's decision.