At a time of rebound in global economic growth, the decision of US President Donald Trump to impose import tariffs on steel and aluminium, in line with his stance of anti-globalisation, has the potential to trigger a trade war. An import tariff of 25 per cent on steel and 10 per cent on aluminium has been justified by Trump — the US cannot have free trade if some countries exploit the system at the expense of others, he says, and that the US supports free trade but it has to be fair and reciprocal. Trump’s move comes in the backdrop of a finding by the US Commerce Department that rising volumes of imports or shipments of steel and aluminium threatened US national security. There has been an immediate fallout — the exit of Trump’s top economic advisor, Gary Cohn.
For India, the impact may be limited. According to the International Trade Administration, India, which is the 14th largest steel exporter in the world, exported just five per cent of its exports of 228 thousand metric tons in FY 2017, with the bulk of the exports being to Belgium, Thailand and markets like Vietnam. But it will hurt firms which export pipes and tubes besides stainless steel, which account for 34 per cent of the steel exports to the US. The punishing move comes also when anti-dumping duties are already in vogue. The timing of this action is unfortunate — not just because of the synchronised economic recovery in many parts of the world but also just when Indian steel exports have starting rising. In FY 2017, India exported 4.9 million metric tons of steel — up from 1.8 million in 2016 with flat products accounting for a large share. Steel prices have also been on the rise. The US trade action could force Indian steel exporters to either scout for new markets or possibly counter flooding of products into the local market by other major steel exporters including from Europe.
The stiff tariffs on shipments into the US are a fresh wake-up call for governments, including India’s. Prime Minister Narendra Modi and his peers will have to keep in mind what Trump said a while ago: “I will always put America first. Just like the leaders of other countries should put their countries first”. For India, that would mean increased policy support and backing for industry to make it more competitive going beyond the government’s current stance of providing preference to locally manufactured iron and steel products besides aluminium.