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American President Donald Trump has suggested to the G7 leaders that the world should eliminate all tariffs, trade barriers, and industrial subsides to promote free trade. Speaking at the recently held G7 Summit in La Malbaie, Quebec, Canada, Trump stated, “No tariffs, no barriers, that’s the way it should be.” He added, “Ultimately that’s what you want, you want tariff free, no barriers, and you want no subsides because you have some countries subsidising industries and that’s not fair. So, you go tariff free, you go barrier free, you go subsidy free.”

Larry Kudlow, Trump’s top economic advisor and an advocate of free trade, has said that the suggestion of no tariffs from Trump led to productive discussions with other world leaders. Kudlow said at the press conference, “As the  resident said, reduce these barriers, in fact go to zero, zero tariffs, zero non-tariff barriers, zero subsidies, and along the way we’re going to have to clean up the international trading system.”

Trump is imposing new tariffs

Trump’s words came just a few weeks after he had decided to impose larger tariffs on steel and aluminium imports from the European Union, Canada, and Mexico which happened a few months after he had hit the rest of the world with the same tariffs. The top trading partners of the US are upset over recent imposition of a 25% tariff on import of steel and a 15% import tariff on aluminium. Canada’s Foreign Minister Chrystia Freeland responded by saying that Trump’s argument for imposing tariffs on Canadian steel and aluminium was “absurd and frankly insulting to Canadians”. Trump’s ‘America First’ agenda justifies his imposition of tariffs to protect the US industry and workers from unfair international competition.

In July 2017, the Trump administration provided a detailed list of changes that it would like to see in the North American Free Trade Association (NAFTA). The top priority for the US administration was a reduction in their trade deficit. The administration also called for the elimination of provisions that allowed Canada and Mexico to appeal duties imposed by the United States and limited the ability of the United States to impose import restrictions on Canada and Mexico. This renegotiation shows how the US is desperate to defend its own economy. The failure of Trans-Pacific Partnership (TPP) is also problematic for the US to safeguard its market.

According to experts, an adverse balance of payment can be seen in the international market. And according to Trump, outsourcing of products and labours, imports of manufacturing goods is slowing down the growth rate of America. Saikat Sinha Roy, Professor, Department of Economics, Jadavpur University, informed BE, “Adverse balance of payments and increased imports into the US economy has served a death blow to American manufacturing industries.” The manufacturing industry in the US has grown by only 1.1% in recent times.

Trump has said that American farmers had been harmed by tariffs and other barriers and warned that US’ trading partners would need to provide him with more favourable terms. Referring to the same, Trump had said in a press conference in the recently held G7 Summit, “It’s going to stop, or we will stop trading with them.” Later, he said, “We are like the piggy bank that everybody’s robbing, and that ends.” Accusing Canadian Prime Minister Justin Trudeau, the US President tweeted, “PM Justin Trudeau of Canada acted so meek and mild during our G7 meetings only to give a news conference after I left saying that, ‘US Tariffs were kind of insulting’ and he ‘will not be pushed around.’ Very dishonest and weak. Our tariffs are in response to his of 270% on dairy!” Trump has also announced tariffs of up to $150 billion on Chinese goods. The imposed tariffs on the US imports of cars and auto parts could devastate the Canadian auto industry. They can also damage the automobile industry of Japan and Germany. If the situation is allowed to escalate, the threat of a global trade war remains real.

Trump is showing interest in Russia and vice versa

Interestingly, Russia seems to be interested to hold a bilateral summit with the US. Russian President Vladimir Putin, on the sidelines of Shanghai Cooperation Organisation (SCO) had informed, “As soon as the US is ready, themeeting will take place, depending, of course, on my working schedule.” Putin welcomed the US President’s call to bring Russia back into the G7. Trump and Putin are holding their first official summit in Helsinki on July 16, 2018. Putin is taking efforts to portray that Russia is an active player in the world stage. Reciprocating Russian overtures, Donald Trump has gone on record saying, “I’ve said it from day one, getting along with Russia and with China and with everybody is a very good thing.” He also said, referring to his proposal of including Russia in the G7 list, “It’s good for the world, it’s good for us, and it’s good for everybody.” However, traditional US allies are concerned this sudden bonhomie between Trump and Putin and will be cautiously measuring the Helsinki encounter. According to many experts, growing warmth between the US and Russia may undermine the strength of the trans-Atlantic alliance.

Situation in India

President Donald Trump has taken a swipe at India along with the world’s other top economies and accused New Delhi of charging 100% tariff on some American products. He has said, “This isn’t just G7. I mean, we have India, where some of the tariffs are 100%. A hundred percent. And we charge nothing. We can’t do that. And so, we are talking to many countries.” He has repeatedly raked up the issue of India imposing high import duty on the Harley-Davidson motorcycles and threatened to increase the import tariff on Indian motorcycles into the US.

According to Prof. Saikat Sinha Roy, “India should show a guarded reaction.” About 70% of the Indian economy depends on the agricultural sector but the US is imposing high export rate on agricultural commodity and technology. India needs to aggressively pursue bilateral trade with its other trading partners including China, the European Union and the UK. For example, it was a good move from India when it offered to export soybean and other agricultural products to China after China imposed tariffs on imports of over 100 American products including soybeans.

Though India has its own trade deficit with China, which stood at $51.08 billion in 2016-17, these two countries can work for improved economic ties and minimise the collateral damage created by President Trump’s ‘America First’ policy. India mostly exports raw materials to China and China exports cheap goods to the Indian market. China still continues to deny India market access to the IT sector, farm produce and pharmaceuticals. Such differences need to be sorted out.

India has recently raked up its tariffs on imports. Cars and electronic gadgets are attracting higher tariffs. The reason may be linked to the promotion of ‘Make in India’ project. India is consistently trying to ensure its own economic strength. But a relook into this strategy is also needed.