 Hello and welcome to NewsClick. Today we have with us Rajat Nag, former managing director general of ADB. Rajat, last time we had met we had talked about the incipient nature of incipient trade war which Trump was launching on China as well as European Union. Do you think that we have actually reached a further advanced stage that the trade war is actually on or is it still in the making? I think it's still in the making excepting maybe the uncertainty associated with it has increased. So as you know delegations from Washington have been to Beijing and there's a delegation going to Washington now and they're going to talk about it. But as you know with President Trump the rules of the game and rules of engagement change so much difficult to say. For example now his team is talking about reducing the trade deficit not by 100 billion which is what Trump himself has said but by 200 billion. So one has to see where it all leads but I think the larger issue is that the uncertainty that the Trump administration has sort of unleashed. Still possess and actually that's going to get worse. Now you know the interesting part is the United States insists that everybody behave as per international law. That for instance anything that is done they go to the WTO and say well this is a violation of WTO rules. For instance India has been pulled up a number of times by the United States. I think the United States has filed the largest number of complaints in WTO against all countries. But this argument that you have to reduce trade deficit this is completely outside the WTO framework. The WTO framework says that you have certain rules on the basis of which you impose tariffs and as long as you follow the rules of the WTO. The trade will be as per some kind of efficiency of the market. Whatever it is. But this argument now is we ask you to reduce X and you have to import Y from us so that we have a trade balance. This is completely outside WTO framework. Not only is it outside WTO framework but it is outside really what I would consider common economic sense. Why is there a trade deficit? It is because I am exporting to you less than what I am importing. But I am importing because there is a cost advantage to it. So the issue should be is there any limitations of access? Is there any particular non-tariff or tariff barriers? Is there any behind the border barriers? Rather than say reduce the trade deficit by whatever amount. That doesn't make any sense at all. So I think not only is the Trump administration's views of reducing trade deficit numerically wrong from a WTO point of view. It's just wrong economically. And the American consumers essentially will be part of the incidence of those costs of making such asymmetric adjustments. You know what you are saying is that it's not in favor of the American consumer as well. But it is in favor of American capital who are not able to produce efficiently and what all the developing countries used to argue. All the developing countries have always argued that they need protection of their markets from countries which are more developed, which have more abilities to do things using advanced technology etc. Now United States is essentially arguing that it is not able to meet with competition from abroad and therefore they need protection at home and since they can't give it under the current rules. Therefore they are basically saying that I will force you because I am big, I have this power. I will force you to balance your deficit against all the rules of engagement that has been there till date. I would look at it a bit differently. I don't think it's in the favor of American capital either. Because with relatively speaking capital mobility, American capital can be invested more efficiently in China or in India. So I think the Trump administration's preoccupation with trade deficit is neither good for the consumers, not good for capital. It is really a political issue that Mr. Trump has thought of in terms of employment. And there ironically it's not going to make a difference either. The jobs which have been lost in the US let's say to say cheaper steel imports aren't really because of cheaper steel imports which have come in from China but it is because China is producing steel more efficiently and therefore the demand for Chinese steel is better. And if you do put a tariff 15%, 25%, those jobs are not going to come back. So the whole thought of using this trade war to get some employment back is I think misplaced. And also large part of the job losses which have happened have not happened because of cheaper imports. They have happened because of automation, because of robotics. And I've been in China recently where, among other things, I was struck to see Chinese manufacturing plants with very few people because they themselves are into robotics so that they can increase efficiency. So I think this whole trade sort of dispute that we are talking about and maybe China will play along because China does have a very huge trade surplus with the US $375 billion. So they might make some adjustments. But I think there are some more fundamental issues which perhaps in the global trading regime should be looked at but not this sort of reducing trade deficit by fiat. You were talking about steel. You were a steel industry shutdown well before China came into the market. Exactly. I'm sure you've been to Pittsburgh. I have seen the Pittsburgh Steel Industry shutdown in front of my eyes as to visit there for other reasons. And we saw those steel plants, at least you could see the chimneys and the blast furnace. And they're not coming back. They disappeared. Right. And they're not coming back. The rust belt will rust even more unless it's replaced by high tech and other industries. But steel is not going to come back. Interesting enough, that's what really happened at Pittsburgh. The rust belt gave away, the rust belt industries gave away to other industries. But even those, as I said, even those plants were dismantled and even the carcasses have disappeared well before China came into the market. This happened with Korean steel, Japanese steel. And that's the one which really drove the U.S. steel industry. As you said, more inefficient, et cetera, et cetera. And they gave away to these. And the American car industry benefited. The cars became cheaper because you got cheaper steel. And the net benefit to the U.S. is actually much higher. True, that the incidents of the cost of some of these are borne by people who lose their jobs. But as you said, those jobs are lost not to Chinese steel imports, just as an example, but really to other factors, including automation. Do you think that from U.S. exceptionalism, we are going to see U.S. as essentially a renegade state, which will decide that it will play by the rules of international order as long as it suits them and play outside it. Now this is an unstable equilibrium. You can't do too far too long. That's right. What I'm hoping is that the institutions, global institutions, American institutions, are strong enough to withstand that. But that is definitely a concern because now no rule of engagement seems to be sacrosanct. And it is actually quite ironic that on the Iran nuclear deal, you would probably see the European partners, China and Russia and Japan now talking to Iran as if they're on the same side against the U.S. And that's sort of a different order altogether. But my own feeling is that this is going to get corrected over time because the institutions are more resilient. But we'll see. The U.S. by withdrawing itself from these arrangements, starting with the Trans-Pacific Partnership, then enables the RCEP, the Regional Cooperation Economic Program, which includes China and India. So you are going to start seeing a different order. What shape that will take? Time will tell. But you're certainly seeing, as you said, unstable equilibrium. How it will sort of pan out in the next two, three years, I think we need to see. But Asia, I think we'll have to start to think much more in sort of a framework in which it plays a much more central role, both as a rule taker and a maker, which up till now it hasn't done. So I think you're seeing a change happening. How it will pan out? Time will tell. Well, Asia or Eurasia. Asia or Eurasia. Because you also talked about the European Union. Though I'm more skeptical in the short run of the European Union being able to break from the apparent strings of the United States. But we are seeing the domestic politics framework of the United States being used as a wrecking ball, shall we say, of the international economic, political order that has been sustained. It's actually interesting, the post-war framework. Which is sort of, you know, which has served the world well. I mean, there have been obvious problems with it. But by and large, that post-Second World War institutional arrangement has worked, which now sort of, you know, is coming increasingly under the threat. From North Korea, Iran, Syria, Libya, Iraq, the number of them were actually the international compact did not hold. And the consequences are there in front of us. What we are now seeing is the impact of these kind of quote-unquote exceptionalism being also translated into international economic arena, which was relatively free of this till now because the US was playing a very dominant role in this. So it's interesting times, shall we say, and not happy times, as you know. Not happy times, yeah. Interesting times. But this is also a time for Asia. To take a strategic view. And not unipolar Asia, because there won't be one. So it won't be a Chinese pole or an Indian pole or a Japanese pole. I think all of them in Korea's. But I think the time has come, and I go back to a theme that I always bring up, this whole concept of Asia playing a more central role, which is consistent with its rising economic power. And if we look at it, this Russia, this kind of Asian pole, seems to be developing with Iran and Russia also coming into some kind of a range into China. True. And I think we just have to recognize this new architecture. But I think we shouldn't also overdo it. I think US will remain, obviously, a very important player and an important pole. If the Asian economies sort of in a grow as one sort of foresees, there are always risks. Some calculations we have done estimates that by 2050, Asia could account for about 52% of the global GDP up from about 26, 27%. So it's a huge change. So Asia will obviously be more important. But I think it's important to recognize there a point that you made, which is very valid, about India and China. You're right. India, Japan, as part of an Indo-Pacific strategy, sort of seems to be sort of wondering whether it should go this way or that, and how to counterbalance China. I think India and China have to start thinking of not counterbalancing each other, but complimenting each other. Thank you, Rajat, for being with us. And we hope you will be there to see the further development of, if not the Asian century, the current configuration, which at the moment seems to be unraveling. Unraveling and uncertain. Thank you. This is all the time we have for NewsClick today. Do visit our website and see us on our YouTube channel.