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In News:

  • Finance minister said trading across national boundaries is an economic imperative of our times and barriers to free trade should be dismantled at the 80th World Customs Organisation Policy Commissionerate meeting in Mumbai.
  • The comments come amid growing concerns over tariff wars and rising protectionism across the world, especially after the US initiated a slew of actions against imports of goods from countries with which it has a trade deficit, including a few items like steel from India. 
  • Trade Barrier:

    A government-imposed restriction on the free international exchange of goods or services.

Trade barriers are generally classified as

  • Import policies reflected in tariffs and other import charges, quotas, import licensing, customs practices.
  • Standards, testing, labeling, and various types of certification.
  • Direct procurement by government
  • Subsidies for local exporters
  • Lack of copyright protection
  • Restrictions on franchising, licensing, technology transfer
  • restrictions on foreign direct investment

Need for Removing Trade Barriers:

  • It is in the larger interest of every country to make sure that trade barriers are brought down to the extent it is possible.
  • No country can manufacture all goods or specialise in rendering all services which are needed by consumers wanting the best quality at the lowest prices. Therefore, the need for open trade. 
  • Nations across the world are now realising that increased trade helps not just the global economy but also its own economy .
  • Limitations on imports do protect domestic industry, but it also reduces consumer choice. In many cases, businesses take advantage of the trade barriers and make cheap goods.
  • Because the consumers have no other choice but to buy the more available domestic goods, they are forced to buy low quality goods.

India’s Commitment:

  • The steps taken by the government have helped in massive improvement in the World Bank’s ease of doing business rank. Over a four year period, India has jumped from 142 to 77 in the current year’s ran king. 
  • On the trading across borders, India is now ranked 80 against 126 in 2015, following a series of customs reforms. 

US-China Trade War:

  • US has started imposing tariffs on as much as 25 percent on $34 billion in Chinese imports. China responded with retaliatory tariffs of 25% on US goods worth an equivalent $34 billion, including soybean, automobiles, and marine products such as lobsters.
  • Donald Trump told that he may also consider imposing additional tariffs of $500 billion on Chinese goods.
  • The US also accused China of stealing American intellectual property and Chinese firms imitating US technologies. Trump believes that Beijing has exploited the WTO-enabled global trade framework to its advantage.
  • The U.S. trade deficit with China was $375 billion in 2017. China has disrupted the international trading system through hidden subsidies, currency manipulation and, more recently, technology theft.

Effect of Trade War:

  • The tariff and other steps will damage the trade agreements under WTO.
  • In the long term, a full-fledged trade war is bad and there could be major global repercussions. The outcome is nearly impossible to control in an integrated global economy.
  • A trade war could weaken investment, depress spending, unsettle financial markets and slow the global economy. It could also result in other countries raising protectionist barriers.

Check Your Understanding:

  • Intensification of trade war between US and China offers many benefits to countries like India but it also poses certain serious threats to our economy. Analyse.
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