Relevance : GS Paper II
(International Relations and Foreign Policy)
Theme of the article
Trump’s ‘America First’ policy and the Brexit deal could pose more challenges to India.
While 2019 is a year of hope for India, a lingering concern is that the Atlantic Ocean may throw up many economic challenges that might rock India’s economic growth.
How US is creating a problem?
- The Trump administration is attempting to replace the rules-based trade order with a bilateral trade agreements and sanctions network, a system that has distinct disadvantages for India.
- Last year, when Mr. Trump gave the green light to start a trade war by escalating tariffs between U.S. and its three main trade partners – the EU, China and NAFTA – a relatively small yet strategically significant tariff spat broke out between Washington and New Delhi.
- Both countries engaged in a tit-for-tat tariff policy, giving momentum to global trends towards trade protectionism. When India was denied an exemption by the U.S. from increased tariffs on steel and aluminium imports, it reciprocated by hiking import duties on 29 American export products, including pulses and iron and steel products..
- A broader disadvantage for India of a spiralling trade war with the U.S. is that it could easily spin out of control and create rifts in other areas such as security and diplomacy. If that happens, it may be of considerable benefit to China.
The U.K. problem
- If the U.K. has a ‘hard Brexit’, India may be looking at unexpected complications regarding trade adjustment, and a U.K.-India Free Trade Agreement (FTA) may be out of the question.
Way forward for India
- For India to secure its trade interests, it needs to renegotiate with both the EU and the U.K. for goods and services.
- Also, the discussion on FTA with the EU must be resumed and a similar conversation must be launched with the U.K.
- If these negotiations are managed carefully, Brexit may even emerge as an opportunity for India to recalibrate the legal terms of its trade with the U.K. and the EU, at the multilateral level, and through free trade agreements.