Trade and Trump: Time to counter tariffs with global cooperation

The past two weeks have seen the President of the United States unleash an attack on trade with all countries. Even penguins have not been spared. A country like Singapore, which has carefully balanced its trade with the US and runs a deficit with it (unlike almost everyone else), was covered under the blanket 10 per cent tariff. It did not matter if one had a free-trade agreement (FTA) with the US, signed by Mr Trump himself — Canada, Mexico, and South Korea all were covered. The higher rates have subsequently been rolled back to 10 per cent for all (except China) for the next 90 days. (A relief, but should we welcome a temporary and partial pause in something thoroughly bad?) How should the world respond to Mr Trump? How should India? 

The best option is to not respond at all. The President wants the world to come calling in search of individual deals. Ignore him. Instead, call one’s friends around the world. Agree on a set of principles consistent with the most-favoured nation (MFN) guidelines of the World Trade Organization (WTO). And start a round of trade liberalisation with the rest of the world. Keep the door open for the US to join in at a subsequent date, if, and only if, it subscribes upfront to the same guidelines. Is it practical to conclude a deal without the US? Certainly. The US may be a large trading nation (it is second only to China), but the rest of the world together accounts for 10 times more of world trade. Over 90 per cent of world trade is unaffected by the US — if we choose to keep it unaffected. We should put our immediate negotiating effort into trade deals with the rest of the world, not the US. We can get to the US on our terms and in our time. Let them go ahead with tariffs — on whosoever they choose. So long as countries do not compete to steal a march on one another in dealing with the US, this option is perfectly viable. What can Mr Trump do if no one responds? 

Unfortunately, we see no major country stepping forward to provide that leadership, whether out of fear or greed. We should be equally happy if none of us know that the Prime Minister of Singapore or India has called his counterparts in Canada, the European Union, the United Kingdom, Mexico, Brazil, and Japan. None of us need to know, but the lack of response to Mr Trump should be clear and cross-cutting. 

If not this best option of international coordination, then act individually, in a manner consistent with WTO rules. Retaliate against the tariffs at choice. Reduce tariffs where possible (that’s in India’s interests in any case) across the board for all countries. Or, if that makes one nervous because “all” includes China, follow an FTA path. The WTO permits countries to selectively reduce tariffs with countries with which we have FTAs. FTAs contain provisions for local value-added to prevent trade leakage; a common norm is 40 per cent. We should deepen our existing trade agreements with the Association of Southeast Asian Nations, Japan, South Korea, Australia, Sri Lanka, and the United Arab Emirates, quickly conclude our long-negotiated agreement with the EU and UK, and apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is both wide (few items are excluded) and deep (tariffs are very low or zero) in scope. If we must negotiate with the US, let us pursue an FTA, but not be in a hurry to conclude anything. We should prioritise deepening our trading relations with countries that play by the rules, not those that disregard signed agreements and assault friend and foe alike. 

The worst option is to play Mr Trump’s game. He claims over 70 countries have already approached his administration. Based on his past, there is no reason to believe him. He wants countries to come calling, ready to negotiate. It is the classic behaviour of a bully to pick on the weak. We should make no mistake. We will end up with the same relationship a bully has with his (in this case it isn’t relevant to add “or her”) chelas: One of deference and insults and collusion in bullying others, at least until it’s our turn to be bullied. 

Mr Trump thrives on uncertainty; he likes to keep the world agog, guessing what comes next. If the world plays instead by existing multilateral rules, it chooses the certainty on which innovation and entrepreneurship thrive. 

The Prime Minister of Singapore reacted to the US’ tariff announcements with a characteristically articulate and thoughtful response. It was, also, unusually forceful with a dire warning of the world entering a dangerous phase of potential fracture. He reminded us of the 1930s, when protection triggered retaliation, which triggered economic chaos, which triggered war. (Lawrence Wong’s initial speech now has more views than the population of his country.) His warning is well meant and needed: How the world responds to the US tariffs will affect more than just trade. If most leading countries respond with greater collaboration, easier access for travel and movement of people, lower protection, and stronger support for existing multilateral bodies, we could turn things around in a positive direction. That would make the world great, and with it all countries in it. If countries pursue selfish policies of trying to make only themselves great, they will destroy their own prospects (just look at the US stock market, bond market, and frenzied pleas from the likes of Apple and Microsoft in the last week) and damage the rest of the world. 

There is another troubling dimension. The speeches, claims, and actions we have seen in the past 12 weeks say much about the importance of standards in public life, about how nations deal with one another, speak to one another, and relate to one another. What if an Indian leader said Bangladesh should be its 29th state, and that we should have New Zealand “because we need it”? If we behaved this way we would be, quite correctly, ignored and ostracised by the rest of the world. The US should be held to the same standard. 

A final comment. As one who earlier spent years studying and teaching in the US, we must draw a distinction between a country’s government and its people. A country is not equal to its government. I have many close American friends who are more horrified by their President’s words and actions than any foreigner. The governor of California, the world’s fourth-largest economy if it were a country, has already said the US President does not speak for it. We should remind ourselves, too, of many decades of the US providing the moral authority we all looked up to. A spirit of generosity and willingness to shoulder international obligations lent weight to that moral authority. As the current administration in Washington deliberately discards decades of moral leadership, we should remind ourselves that Americans have not changed. The American government has. If we heed Lawrence Wong’s warning, we need not repeat the 1930s. The choices we make now — of coordination, fairness, mutual respect and respect for national feelings — will determine how things play out. Seeking common prosperity for all countries is the best way to assure one’s own. 

ndforbes@forbesmarshall.com. The author is co-chairman Forbes Marshall; past president, CII; chairman of Centre for Technology Innovation and Economic Research, and Ananta Aspen Centre. His book, The Struggle and the Promise has been published by HarperCollins