Dollar to Doha

The US Senate is due to vote on Tuesday on a bill which will impose tariffs on countries that have “deliberately undervalued currencies”. This is,obviously,aimed at China,which has persistently denied that its currency,the yuan,is undervalued in order to keep its export-oriented growth going. For the Americans,the eternal trade deficit they run with China is fuelled by the unnatural price edge given to Chinese products by government policy to keep the yuan low and its exports cheap. In response,the vice-foreign minister of China,Cui Tian-kai,warned that a bill imposing tariffs on China would be seen by his government as the first shot in a trade war.

Tian-kai went on to say that a US-China trade war would not only further hurt US jobs growth,but endanger the global recovery. Certainly,international trade links survived the 2008 recession thanks to the G-20 prioritising the availability of trade credit and its frequent statements against protectionism; and that intact trade has been an important contributor to global recovery. Yet there seems little hope of heading a confrontation off; the US trade representative has also submitted a complaint to the WTO that nearly 200 “hidden” export subsidy programmes in China violate its rules. India has been dragged into that battle,with the US naming a few dozen Indian programmes as well. There is absolutely no likelihood,as this example demonstrates,that India will emerge unscathed from an escalation into all-out trade war. Indeed,India’s ill-advised tendency — which Chinese Premier Wen Jiabao suggested last week be made into regular policy — to choose closer cooperation with China at international forums,and outline a clear distinction between “India and China” and “the West”,is likely to boomerang.

There’s an alternative to sitting back and allowing the Americans and the Chinese to ramp up their rhetoric and their legislation while trade shrivels up: and that’s to renew the focus on multilateral trade agreements. The Doha Round ministerial meeting is in December. China’s newfound trade power is best engaged by multilateral discussion; India should reach out to the US to re-energise trade talks.