Uncertainty in global trade

Last Tuesday, voters in the United States (US) gave a majority in their House of Representatives to the Democrats and a majority in the Senate to the Republicans. On the same day, tougher US sanctions against Iran came into effect, with India getting significant waivers.

In his press conference after the election results, President Trump claimed victory and was rather combative. But, it is clear that no matter what he says, his wings have been clipped somewhat. The days he could carry legislation through a Republican-controlled House and Senate are over and many of his unilateral measures on trade will go through greater scrutiny.

This need not necessarily mean the setback to Trump will affect the course of the US-China trade war. Trump’s trade policy or punitive tariff regime was not a major issue in the campaign. Quite a few influential Democrats have supported it, backing the confrontational approach with Beijing.

However, they might like to soften the attitude towards multilateral trading institutions. So, even as the anti-China sentiment could be expected to continue shaping foreign and trade policy debates, the Democrats might ask the Trump administration to respect the principle of non-discrimination that is at the core of various agreements at the World Trade Organization. 

Thanks to intense diplomatic effort, India got not only a temporary waiver from sanctions on import of oil from Iran. It also got a go-ahead for completion of the Chabahar port in that country and a railway line from there to Afghanistan. Beside India, seven more countries, including China and Japan, may also continue oil import from Iran for the next six months without inviting the wrath of US sanctions.

Illustration by Ajay Mohanty

However, the payment mechanisms have to be worked out, as there is no waiver from financial sanctions. The government is trying to work out a rupee payment procedure. If it does do so, this would help exporters, as the non-convertible rupees that Iran gets for shipping oil to India can be used only in paying for export from India. Anyway, whatever arrangement the government might make must be made known by the Reserve Bank of India, through incorporation of the instructions in the Master Directions for Export of Goods and Services.  

On the day the tougher US sanctions on Iran took effect, crude oil prices fell significantly, signifying worry on global growth prospects. The International Monetary Fund lowered its targets for global economic growth in 2019, citing the US-China trade dispute as a major factor. This might be a dampener for Indian exporters, hoping to improve their performance due to a weakening rupee. However, China reported much stronger-than-expected export for October as shippers rushed goods to the US, still its biggest trading partner, racing to beat the higher tariff rates due to kick in at the start of next year. Its import growth also defied forecasts for a slowdown, suggesting Beijing’s growth-boosting measures to support its cooling economy might be slowly starting to make themselves felt. 

Meanwhile, President Xi Jinping, in his inaugural address at the high-profile trade exhibition in Shanghai, promised to open China’s growing consumer market wider, seeking to defuse complaints about its technology policy and curbs on foreign business.

Overall, the developments of last week have not lessened the uncertainty in the global trading environment. 

Email: tncrajagopalan@gmail.com