So, the much-threatened US-China trade war is now inching towards a détente. After two rounds of strenuous negotiations—first in Beijing a fortnight ago and later in Washington last week—the US and China have agreed to suspend their tit-for-tat retaliatory measures. The two countries decided to negotiate a “framework" for fixing the targets that both sides would try and fulfil in both goods and services. Further, issues concerned with imbalances in their bilateral trade will also be simultaneously addressed. Surely, such an arrangement cannot be a one-way street. It is bound to involve give-and-take on both sides.
China signalled its intention to increase imports of US farm products (soybeans, pork and other agricultural items) and energy, and also reduce Beijing’s $337 billion trade surplus with Washington. In return, the US will need to lift the sanctions on the Chinese telecom company ZTE Corp. and remove other restrictions on Chinese companies. The devil is in the details of the understanding the two sides reached last week.
If the initial responses from the “America First" trade hawks are any indication, Washington seems to have showed its hand. The fact that President Trump had to fire back at critics of his weekend trade deal with China demonstrates that Washington did not get what it demanded. Trump said the deal with China would bring down Chinese barriers to US goods “for the first time and be boon to US farmers". “Under our potential deal with China, they will purchase from our Great American Farmers practically as much as our Farmers can produce," Trump boasted in a tweet on 21 May.
Senate minority leader Chuck Schumer tweeted that President Trump and his “team have to be strong and not sell out for a temporary purchase of goods without fixing the real issue: stealing our IP, which costs us millions of jobs long term". Clearly, there are divisions within the US negotiating team lead by the treasury secretary Steven Mnuchin on the one side, and the US trade representative (USTR) ambassador Robert Lighthizer, who is a pronounced China hawk and a champion of managed trade. The USTR said, “Getting China to open its market to more US exports is significant, but the far more important issues revolve around forced technology transfers, cyber theft and the protection of our innovation."
In short, China seems to have an upper hand after the two rounds of talks. Beijing is ready to provide some carrots to please Trump and allow him to claim a Pyrrhic victory ahead of the mid-term elections.
But China is not going to budge from its core trade interests at any cost, a China analyst said ahead of the last week’s meeting.
Is there a lesson for India from this trade war? It would be naïve on the part of India to remain complacent that Washington will not threaten New Delhi for enhanced market access in agricultural and dairy products, and medical equipment. Although India’s trade surplus with the US is little over $25 billion with the US as compared to China’s $337 billion, Washington reckons India as a big market for its dairy and agricultural products and medical equipment.
In the dairy sector, India made significant strides for becoming self-sufficient thanks to “Operation Flood" and “White Revolution" launched by Verghese Kurien in 1970. The US remains determined to export its heavily subsidized dairy products to India that could wipe out the livelihood of millions of poor people engaged in the domestic dairy sector.
On 9 May, the US filed a counter-notification for the first time since the establishment of the WTO against India, alleging that India’s market price support (MPS) programmes for wheat and rice breached New Delhi’s allowable levels of trade distorting domestic support.
The US, which has a range of trade-distorting support programmes for rice and other items, is targeting India after blocking the permanent solution for public stockholding programmes for food security.
The US also launched a trade dispute against India on duty drawback and other programmes for Indian exporters. The US also wants to deny the generalized system of preferences (GSP) preferential market access for Indian textiles, leather, and other products.
Last but not least, the US wants to terminate the special and differential flexibilities for India, China and South Africa, among others. Unless New Delhi stands strong like China, without yielding ground and offering market access whenever Trump blows hot and cold, the Narendra Modi government could worsen the plight of its hundreds of millions of poor farmers in the days to come.
A bear hug with President Trump might not be the best solution for the threat posed by the US to India on the trade front.