Trading in an Uncertain World
With a share of about 2% in global trade, India should perhaps be worrying very little about the current spat between two of the major trading countries of the world, China and the United States. But with domestic demand slowing down and the consumption sector being affected by falling sales, India has to necessarily look outside its shores for selling its products and services even more.
It was colonialism which dealt a body blow to India’s pre-eminent status as a trader on the world stage. In the 18th century, India’s share of world trade was around 17%. Unfortunately, those who came to trade with India worked their way to overpower the nation politically and the East India Company which came to do trade went on to dominate the territory.
Perceptive commentators like the former RBI Governor, Dr. Y.V. Reddy, use the term ‘re-emerging economy’ to refer to India because from a historical perspective, the country is trying to regain its pole position in global trade. It is not a new entrant like other smaller players such as Vietnam, Indonesia, the other South East Asian nations or even South Korea.
What then are the broader issues which the country should reckon with as it seeks to increase its exports, rebalance its imports and improve the level of trading with the outside world ?TheUnion Finance Minister, Nirmala Seetharaman, recently announced a few measures to boost exports including the holding of Dubai-like mega shopping festivals across four destinations from 2020.
India’s exports have been stagnant, indeed declining over the past five years. There is a new wave of economic nationalism sweeping across the world. In 2005, American author Thomas Friedman wrote his best seller,The world is flat, alluding to the fact that the world has become a level playing field in terms of commerce wherein all competitors have an equal opportunity.
It was even proposed that a fast-integrating global trade platform is an antidote to geopolitical tensions. In his book, Friedman proposed that “no two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain.”
Rise of China
More than anything else, it is the rise and rise of China that seems to have upset the applecart of global trade. Even as other major trading countries led by the US are worried about China, there is a feeling also that the Chinese have not got their due at the global power table.
The world has not yet coped with the fast-paced growth achieved by China in a very short span of time. In 1989, China was a command economy producing goods which few people wanted to buy. In June that year, the world watched the brutal crushing of dissent at the Tiananmen Square and perhaps as many as 10,000 people were killed. The world would never know the actual number as the Communist Party runs a one-party authoritarian regime there.
Reform leader, Deng Xiaoping, then inspired his countrymen with the slogan “to get rich is glorious” and set up the first special economic zone in Shenzhen in 1992. The southern city, bordering Hong Kong, was then a cluster of houses among paddy fields. In a few years, it became China’s most important manufacturing centre.
Economically and politically, China integrated itself with the international community. It entered the World Trade Organisation in 2001. In 2013, China launched its Belt and Road Initiative, a global development strategy involving infrastructure development and investments in 152 countries. Belt refers to road routes and the Road, in fact, points to the Sea Routes for trade. In 2015, it launched the Asian Infrastructure Investment Bank, with the intention of tasking on multilateral agencies such as the World Bank, controlled by Western powers.
It is this fast-paced growth of China which has caught the US and the world unawares. Suddenly, the US discovered that the levers of power were shifting to Asia, with India also drawing investments and growing at a good pace. Together, these two countries constitute one-third of the global population and are formidable economic forces to be reckoned with. This has given rise to protectionism which is a fallout of the fear of the Unknown, a growing realisation that China could well become a power pole, all by itself. President Trump’s fulminations of ‘America First’ and the rants against China (and India, to a lesser extent) primarily reflect this concern.
Birth of Euro
Elsewhere, in Europe, the project for a union of States on the lines of the United States does not seem to have succeeded.As a young foreign exchange dealer, I remember vividly the birth of the Euro in 1999.
It was a high tide for European integration and currency union was said to be the precursor for a political union. The discussion in those times was around the concept of a United State of Europe (USE) which will rival the USA and the Euro replacing the US dollar as the numero uno among global hard currencies.
Almost 20 years later, while the Euro has become the second largest reserve currency after the US dollar, the idea of the European Union has lost some of its lustre. And Brexit has been the most proximate manifestation of this retraction from integration. In 2016, the UK voted in a referendum to exit the European Union.
In my view, the crashing out of Britain from the project of the European Union was an event waiting to happen. Great Britain never sought to adopt the Euro and had secured an opt-out at the time of the Euro ideation itself, via the Maastricht Treaty in 1992.
It was clear from the beginning of the European integration project that UK was at best a part of the European Union as it was a ‘marriage of convenience’ without its heart and soul being inside the relationship.
China-US trade tensions on one side, Brexit and fallout in Europe, the Middle East on the boil - the outlook for global trade appears to be bleak as temporarily at least,we are witnessing a transition from an era of globalisation to protective and insular nationalism.
In April, the World Trade Organisation (WTO) predicted that merchandise trade volume growth would fall to 2.6% in calendar year 2019 from 3.0% in 2018. With world trade and global GDP having grown in tandem since 2008 (26%), estimates put world GDP growth at around 2.5% in 2019 and 2020.
It is in these troubled times that India is trying to push its exports. As the trend in the last five years indicates, the task ahead is very difficult.
In my view, the solution to pushing exports lies in exploring bilateral and regional fora for trade growth. For quite some time now, following Pakistan’s refusal to recognise ‘terrorism’ as a threat to regional peace, India has not been able to steer the SAARC towards higher trade.
In this context, the Regional Comprehensive Economic Partnership (RCEP) which proposes a Free Trade Agreement between the ASEAN (Association of South East Asian Nations) and its six FTA partners - China, Japan, India, South Korea, Australia and New Zealand - offers hope.
Union Commerce and Industry Minister, Piyush Goyal, has spoken in favour of the framework. Even though murmurs of protest have been heard, as the Minister said, “national interests cannot be hijacked by one or two industries”. Ultimately, we will have to realise that we either ‘Trade’ or we ‘Perish’.