 Hello and welcome to NewsClick. We are going to discuss the ongoing trade wars which seem to have intensified with President Trump's latest shall we say sanctions on China, which China is also responding to. This of course means destabilization of the global trade regime which we have discussed earlier with others as well, but with Professor Vishu Jindhar who we have in the studio today. Vishu Jindhar we have discussed this issue a number of times. The threat it brings to the trading system as a whole. It doesn't seem that the momentum which we thought might be just maneuvering has stopped. It seems now the entire trade with China is in danger of coming under various sanctions. Exactly I think President Trump has been mentioning this 500 billion amount for the past few months. So, if you see what US imports from China is actually 507 billion that is what the number was last year. So, what he is actually talking about is targeting the entire import from China and that is what he is going. I think he is going incrementally you know it was first 50 billion which was in August and now it is 200 billion and so from US side it is 250 billion and China has immediately retaliated with 60 billion. So, it is 250 billion versus 110 billion that we are looking at now. You know but one thing that is interesting is we thought that it would have repercussions across the trading regime and this would at least introduce problems for different economies including the US economy. But the US economy seems to be doing better. The dollar has strengthened and in fact the problem is with the shall we say the middle income group countries like Brazil, like Turkey, like India whose currencies are weakening at the moment. So, I think we have to split this issue up into two parts. The part about US economy sort of getting the momentum right now I firmly believe it is actually past legacy. You will remember that post 2008 you know when Obama Bush started this but Obama did a whole lot of palm priming and many of the initiative that he had taken were of sort of you know medium term kind and investing in technology and you know sort of strengthening the production base and he was doing it quite silently. So, what I saw and actually I analyzed this it was de facto industrial policy coming but not in you know the name. But to say they were doing planning something they were actually doing planning. They are actually doing planning. They are actually providing a whole lot of subsidies something that they accuse the Chinese of and the interesting part was that a lot of these subsidies were routed through the defense sector. Which comes outside the trade regime. Absolutely. So, you know NASA was doing a lot of the you know the back stopping work and so all this was happening in the US and I think the fruits of this is going is now being you know reaped by Trump. But let me also say that you know if this goes any further then the impact of tariffs is will clearly be on the prices of the products that US imports from China. And almost everything that the Americans consume in every sector is somewhere other the other link to imports from China. So, what are we looking at? We are looking at actually a sort of a general price rise kind of an inflationary pressure. But if the exchange rate changes in favor of a stronger dollar then this will not be seen by the American people. Nobody is going to come because you know till now we are talking we are talking about only 50 billion dollars. Now once is extended it to 200 billion you are actually covering bringing in a whole lot of products into this basket. 50 percent of all imports US just of China. That is right 50 percent of all imports. Now in when we had imposed tariffs on 50 billion worth of imports the tariff was 25 percent. So, initially he actually threatened a similar kind of tariffs 25 percent and I think he has been advised by you know whole lot of people not to go that way because that would have immediately put that shock in the US economy. Now once you you subject the economy to this kind of a price shock then you know you are going to get into a vicious cycle. Let me be the devil's advocate here. Suppose there is a 10 percent tariff which is what is imposed at the moment on this 200 billion. But the Chinese currency weakens by also 10 percent arguments. Then there is no effect on the American consumer. Let me argue this way. Let that it is difficult to visualize the situation where the Chinese currency will depreciate by another 10 percent because you know if you look at the past 6 months there is already been a depreciation of about 9 or 10 percent. And it is highly likely that in another 6 months there is going to be another 10 percent depreciation. It is unlikely. It is very very very very unlikely. So, my sense is that this entire you know sort of 10 percent increase in tariffs will be passed on to the consumers in terms of higher prices. Now once you have the higher prices once you have the impressionary pressures then you know the then you will have to then go in for an interest rate hike. You know the good monetaries will actually do this. And then you know the vicious cycle will come in. Inflation and inflation and cost of money going up. And the pressure on the US dollar. Let me take it from another tack that if we for instance or the other countries who are hit by sanctions including China and India is also on the list as we all know. If that happens then other argument is if the currency strengthens the American sale of goods would get affected. But American sale today is largely in defense and there isn't much that the world can do on that. No absolutely. There is there isn't much they can do. And I think the other thing which is also happening is that the Americans are not getting their way in the defense deals. You see the desperation with India and I think the reason why they want to impose all these sanctions against India is because they you know India is not going and buying the equipment. They are cutting all the aid to Pakistan. So they are losing a huge market out there. So I think in terms of their you know sort of defense deals the Americans are doing pretty poorly. The US is in a pretty bad way because you know in terms of you know manufacturing they don't have anything. They can't afford except arms. Bombs. Except arms. Except arms. Bombs and arms. That's right. So if if President Trump you know thinks that by imposing higher tariffs he is going to make America his bucking up the wrong tree. Because you know industrialization is not a switch that you know you switch it on you know switch off everyone else and the Rust Belt is going to start rolling. It doesn't happen like that. So you know the Rust Belt will start rolling only after a few years if he takes the right kind of policies. And he can't take the right kind of policies because his whole budgetary policy is completely perverse. It's in support of the hyper rich. Absolutely. Who are essentially financial companies. Absolutely. And therefore they have no stake in any manufacturing whatsoever except defense. Absolutely. So you know the problem that the US is facing today is because it was actually a consumption led economy. And this consumption bench has been fuelled further by President Trump in the last last one year. So there is no way that the Americans are going to get the investment rates up so that you know he's talking big about in you know getting the infrastructure right. It is not the money to do that. We've all seen how poor American infrastructure today is compared to the rest of the world. So he doesn't have the money. He doesn't have the funds to do that. The government is breaking completely. So he can't even go and borrow from anywhere. So I think you know because of all these kinds of perverse policies that he has taken and he has now taken that huge gamble on trade. And let me tell you it's not just the Chinese that who would actually you know hit against him. I was actually looking at what this action on steel and aluminum have done to the global trading system as you know. This is the first set of sanctions. The first set of sanctions at the top. And I was just looking at the number of disputes that this has triggered in the WTO. There are 22 disputes 15 by the trading partners who have been miffed because of you know the steel and aluminum and others also because prior to steel and aluminum there were a range of anti dumping actions that he took against some countries. And so there are 15 against U.S. And the U.S. has then retaliated in the WTO with seven more. So the 22 disputes there which you know has gone under the radar screen. So just imagine what is going to happen to the trading system because you know there are all the major countries including India you know are at war with the United States. So let's start you know sort of thing that is just the U.S. China war that is taking place. It's truly you know a global trade war and the likes of which we haven't actually seen. You know we only you know talked a bit about the 30s trade war the Begaday neighbor policy. But in last very long you know the U.S. retracted very soon. But what Trump administration is doing today is opened up a whole Pandora's box in terms of trade disputes. So where this is going to go you don't know because the other problem let me just mention since I am on the WTO that the U.S. has cut the main arm of the WTO which is dispute settlement at the end of this month. You know beginning October in the appellate body which is supposed to have seven members. There will be only three members left. And for any appellate body the panel to adjudicate you need a minimum of three. So all these disputes which are piling up and which would certainly go to appeal will have to be you know sort of adjudicated by these two poor three fellows who won't know what to do. So now it's a it's a mindless kind of a situation that has happened and don't know where it is going to end. Thank you very much wishes for being with us. I think we go need to watch the way the trade wars wars are developing. And it does appear that Trump and his administration is having gained out of WTO and they got the biggest gainers of the WTO have now taken the position that let's consolidate our gains and we don't need the WTO anymore. This is the only explanation without saying it outright without dispantling it physically just hamstring it do a whole lot of actions outside it. And then the consequences can be weathered by hamst making WTO ineffective. That's what I think I think I think we need to see how the WTO you know next next next month onwards how WTO is able to you know counter this kind of an assault. And this is very interesting because Bishu Jit and I and various others have been opposed to the WTO regime and we are now in this extremely odd position of having to say that dispantling WTO is not in our interest either. So we are caught in this kind of shall we say odd situation but then that's the reality of it that once the system comes it has certain elements to it. What we don't want is no system which is what the US is pushing the trading system to. Thank you very much Bishu for being with us this all the time we have a news click do keep watching news click on this and other issues.