Home >News >India >Why trade conflicts have become inevitable

The US-China trade war has returned to the fore with the US threatening new tariffs on China for its alleged role in the coronavirus outbreak. The underlying trade tensions, however, have deeper roots.

Global trade and financial imbalances have been building up over time with trade deficits heavily concentrated among a few economies including the US, a new Economic and Political Weekly (EPW) article by Biju Paul Abraham and Partha Ray of the Indian Institute of Management, Calcutta argues. And global institutions, particularly the World Trade Organization (WTO) and the International Monetary Fund (IMF), have proved ineffective in addressing them.

The authors argue the WTO has failed to develop an effective mechanism for countries to raise concerns over persisting trade imbalances with other WTO members and take steps to reduce them. They argue that the IMF too has failed on two major counts: one, to identify the roots of the subprime crisis in the US and second, to tame China’s exchange rate distortions.

The ineffectiveness of these institutions is reflected in the fact that the US could successfully circumvent international trade rules. The US, in addressing its trade concerns, did not seek recourse to the WTO dispute settlement system, the authors point out. Rather, it unilaterally imposed higher tariffs, citing provisions that could not be challenged in WTO.

The efforts of the emerging economies, particularly the BRICS (Brazil, Russia, India, China and South Africa) countries, to influence the G-7 for initiating reforms of these international organizations have failed so far. These emerging countries have been constrained both by differences among themselves and their domestic economic and political vulnerabilities in effecting change.

A dangerous consequence of this failure could be an escalation of trade conflicts going forth, which could further hurt global growth.

Also read: Trade War and Global Economic Architecture

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