“War between US & China is a technological one”

In her interaction with TPCI, Dr. Arpita Mukherjee, Professor, ICRIER,  talks about the ongoing dynamics of the US-China trade war, and how India should negotiate its interests at the WTO, especially on key issues like S&DT and e-commerce rules.

TPCI: There goes a popular adage – that when US sneezes, the world catches a cold. How true is this in the present global scenario when it comes to trade and economic linkages?

Dr. Arpita Mukherjee (AM): The US has been a proponent of the free market for a long time and the trade war between the US and China is primarily on technological supremacy. While the US had earlier opened its doors to allow goods to come in, China had imposed a lot of barriers on American technological firms. To pressurise China to open its markets to US technological players, the US is now imposing barriers on imports from countries, which are taking protectionist policies for its technology firms. This has led to a number of countries taking protectionist measures; sometimes on their own and sometimes as a retaliation, which is adversely impacting global trade including trade in goods, services, e-commerce, etc.

China, today, is as strong in terms of technology as the US, it has a large number of patents and has made huge investment in R&D. However, the closed-door policy, which has so far helped Chinese firms to grow in the domestic market also makes it difficult for them to expand globally. For example, China has kept its domestic market closed through policies like on soil data localisation requirement, but if it now wants to expand global e-commerce trade, it has to change the policy and become more open to global companies including American companies. China realised this and joined the WTO e-commerce group.

Today, due to the fourth industrial revolution with technologies such as AI, machine learning and robotics,  workforce is no longer a key factor in determining where the industry is located. So, the dependence of global companies on certain markets with low cost manpower like India & China will not be a core determinant of gaining global competitiveness.

Countries like India are being entangled into this. The protectionism of US did not initially touch us. It touched India only when we brought out data localisation, which has been heavily borrowed from China. This made us a target. We are in between – neither as aggressive as China, nor as open as the US. So, we will be badly hurt because we are implementing restrictions in a hitherto open economy.

TPCI: What is your view on the steady rise in the number of multilateral trade deals being signed without the US like RCEP, Belt & Road initiative, etc?

AM: RCEP is a mega trade agreement and is expected to cover issues beyond the WTO.  One belt, one road (OBOR) is about China trying to become a global leader and establish its supremacy.

A WTO framework is always better than mega trade agreements. Exports from India have slowed down and I don’t think India will gain in terms of exports of goods and services from RCEP in the short run; but there may be political gains and gains through investment flows, technology and collaboration. These gains will depend on the quality and depth of agreements and I think that India needs to do a more comprehensive research and review of regulations rather than its traditional focus on mode 4 or labour mobility.

TPCI:  Given the growing unilateral and protectionist policies by the US, are these deals a way to subvert America’s dominance and reduce dependence on its (US) economy?

AM: Even if such trade agreements are signed with other countries, least developed countries will turn to US/EU/Japan for aid. US is one of India’s key export markets for goods and services. I do see the growth of China and a competition to the US, but economies like us will continue to depend on the US. Moreover, the supremacy of a country over another country is not just confined merely to trade agreements.

TPCI: Given the tactics by the US related to the delay in the appointment of judges, do you think that WTO Appellate Body is in danger of failing?

AM: US has been a major stumbling block in the WTO. On one hand, it has been raising a number of disputes against countries like India and on the other; it is delaying the appointment of judges to the Appellate Body. If one examines closely, the US and EU have different goals and missions at the WTO, but despite their differences, they agree in terms of challenging the kind of subsidies given to the state-owned enterprises in the WTO, export-linked subsidies given by India and the localization policy in e-commerce. US is also going for plurilateral agreements in areas of interest to its companies.

TPCI: What should be India’s approach on issues like S&DT and e-commerce at the WTO?

AM: India can ask for S&DT since we are a developing country. In e-commerce, we should have done a comprehensive survey and taken expert and legal advices. We have not even entered the e-commerce negotiations with 70 other countries, so we don’t know what’s really going on there. Can India afford to be out of the negotiations? We need to understand views of different players and then take an informed decision. I think we need strong regulation and policies in areas like data protection and privacy and policy should be based on consultation and these should be put in the public domain.

TPCI: Will the rise in multilateralism we see in global trade counter US unilateralism?

AM: Who will counter the US? China? As far as trade in goods and services is concerned, China already caters to half of the world’s population. As far as trade in goods is concerned, China is a global production hub. But as far as technological prowess and strategy are concerned, US had an edge over China, until recently. Things may change in the future.

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Dr. Arpita Mukherjee is a Professor at ICRIER. She has over 25 years of experience in policy-oriented research, working closely with policymakers in India, European Union, United States, Association of Southeast Asian Nations (ASEAN) and in East Asian countries. She has a PhD in Economics from the University of Portsmouth, UK. Prior to joining ICRIER, she worked with the UK-based think tank – Policy Studies Institute and taught at the University of Portsmouth. Her research interests include trade and investment; services; WTO, bilateral and regional trade agreements; e-commerce; special economic zones; economic corridors; food supply chain; start-ups and entrepreneurs; retail, ICT, food processing and other sector studies; and labour mobility. She specialises in sector and product-specific market trends, go-to market strategy, and government policies.