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Business News/ Opinion / Views/  The US must play champion of open world trade again

The US must play champion of open world trade again

A reversal of aberrative Trump policies is critical not just to world trade but also US interests

Photo: MintPremium
Photo: Mint

My piece on America’s economic resurgence in Mint on 9 July highlighted its growth drivers, especially higher infrastructure spending within an overall expansionary fiscal agenda, raising its deficit and debt to record levels. In the short run, real output will likely rise sharply, with risks for the current account deficit and inflation, and with global implications. This makes it essential that broader structural reforms be undertaken quickly by the Joe Biden administration, thereby convincing markets that the overall agenda will address these risks. Crucially, they must be designed to help global growth recover sustainably.

Among the needed reforms is a trade agenda that removes Biden’s predecessor Donald Trump’s protectionist measures, which have had significant domestic effects on US trade and production, as well as a multilateral impact (as countries have retaliated) that has constrained global trade. Although global trade has recovered to pre-pandemic levels, the recovery is uneven, especially in South Asia and other emerging markets, and trade in services is lagging. Besides, pre-pandemic trade growth had become sluggish.

US trade restrictions may not be immediately central to the American recovery plan but, as Anne Krueger recently explained, they have broader implications which have damaged US commitment to internationalism and multilateralism. Domestically, they have affected the competitiveness of US companies that have been shut out of multilateral agreements, and, globally, the disarray in the trading system has led firms to delay investment plans and spend resources to diversify supply chains.

It helps that the Biden administration has committed to a “worker-centric" trade agenda, which would ensure that the benefits of global trade benefit US workers. Such an agenda requires Trump’s protectionist measures to be reversed.

However, the US has not yet begun doing so. Many trade distortions introduced over the past four years remain in place. Emerging markets risk losing more from capital outflows than they will gain through exports when US monetary conditions tighten. There are at least four aspects of the trade policy agenda that need to be taken forward.

First, tariffs have been retained on steel and aluminium imports that were imposed by the Trump administration for unrelated security considerations. These have led to counter-tariffs and have wider employment, trade and growth implications. The US needs to start rolling them back.

Second, the Biden administration has committed to prioritizing US producers in public procurement and strengthening the ‘Buy American’ requirements put in place by Trump. These policies are counterproductive to the administration’s aim of improving domestic productivity. At a minimum, the ‘Buy American’ provisions should be made consistent with the US’s international obligations, especially vis-a-vis an open trade regime.

Third, the growing entanglement of trade and currency issues—such as investigations into currency-based countervailing duties on China and Vietnam and the inclusion of currency provisions in trade agreements—presents a significant risk. Treating currency undervaluation as a subsidy also undermines the mandate of the International Monetary Fund (IMF) to assess the equilibrium of exchange rates. In short, currency-related trade responses must be avoided. Instead, the IMF should use its mandate to address the underlying macro-structural distortions.

Finally, new trade agreements need to be negotiated. The Trade Promotion Authority, under which trade agreements can be ratified faster under US law, expired on 1 June. Its extension is necessary. For the US, following Trump’s withdrawal from the Trans-Pacific Partnership (TPP), there is significant loss from also staying out of the alternative Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It hurts US exporters of agricultural and manufactured goods.

In addition, there are global trade and investment distortions in areas such as tariffs, farm and industrial subsidies, and services trade, where risks have risen of counter-tariff races. Renewed US engagement at the World Trade Organization (WTO)—including restoring the proper functioning of its dispute settlement system—is a critical step to rebuild confidence in the WTO. However, sustainably dealing with the apparent dysfunctionality of the WTO requires wider multilateral support, including from India.

The bottom line for the Biden administration is that a removal of obstacles to free trade would not only help create more and better US jobs, they would also have mirror effects globally if done in consistency with the US’s international obligations towards an open and transparent trade regime.

These are critical issues for India and other emerging markets, which are torn between joining bilateral or regional trade agreements and enforcing tariffs at levels inconsistent with supporting productivity, competition and exports.

India, in particular, is deeply affected by the lack of multilateral rules for services, e-commerce and environmental protection—areas where the US had planned to set international rules for trade under the TPP. And it would be in India’s interest to work closely with America towards rebuilding the WTO’s role in these areas of its comparative advantage.

Anoop Singh is a distinguished fellow at the Centre for Social and Economic Progress, New Delhi and was a member of the 15th Finance Commission

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Published: 14 Jul 2021, 09:45 PM IST
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