US President Donald Trump’s move to impose tariffs of 25% on imported steel and 10% on imported aluminium, in the name of protecting domestic industry from unfair trade, is a bad idea. It will raise costs for US industries that rely on steel and aluminium use, from carmakers to construction, hurting shareholders and consumers. Then, there is the risk of a trade war. Already, China, the world’s biggest producer of steel, Canada and the EU have threatened to consider retaliatory measures against the US, and this could hurt a wide variety of US exports. A better and more rational way would be for these countries to approach the WTO. India, which is a minor exporter of the two metals, should wait and watch. ET’s columnist Swaminathan S Anklesaria Aiyar suggests that if an anti-US trade coalition gathers force in multilateral forums such as the WTO, India should unobtrusively join that crowd, and make sure it does not stand out. A guarded response makes eminent sense.
A formal complaint at the WTO would hold only if the import tariffs on steel and aluminium breach the so-called bound rates (or ceilings) that the US has committed to at the WTO. There will be clarity only when the US comes out with the list of items that would attract steep tariffs. The WTO represents a strong rule-based multilateral framework, meant to ensure smooth trade flows. For example, based on a WTO ruling in 2003, the US removed safeguard duties imposed on imported steel by President George W Bush. Reportedly, the US is now blocking the appointment of members of the WTO’s appellate body that could render it incapable of hearing and resolving trade disputes. The seven-member dispute-resolution body has only four members, and if the number dips to two, it cannot function. This goes against the tenet of multilateralism.
Protectionism in the US notwithstanding, the rest of the world should desist from similar moves. But India is sliding towards protection ostensibly to encourage Make in India. Raising tariff walls is not the right way to boost efficient manufacturing.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
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via If trade war breaks out, stand and watch