Trump’s ‘America First’ resonates the resurrection of inclusive growth and a retreat of globalization. A proverb says when America sneezes, the World catches a cold. Now, Trump rants for protectionism, and China is catching a cold. Jittery China challenged protectionism and renounced it as instrumental for global growth. Thus, the global growth is embodied in ambivalence– protectionism and globalization.
Protectionism is the precursor for inclusive growth. And, inclusive growth is against the vertical growth of multi-nationals, who bring capital, brand, technology and management from headquarters in rich world and produce in emerging nations using cheap labor and raw materials under the lighter rules of pollution.
The Modi-led model for growth is a mixture of protectionism and globalization. His Make in India is fine tuned for inclusive growth with the main aim to increase employment opportunities with widespread manufacturing activities in the country and alleviate poverty. The advantage to Modi’s Make in India initiative is India’s large domestic demand.
Trump’s grandiose move to make ‘America Great’ by strengthening manufacturing muscles in the USA is in the line with Modi’s Make in India initiative. Trump pledged slashing corporate tax to 15-20 percent from 35 percent and lure American investors to come back to the USA. Modi’s Make in India initiative aims to incentivize the domestic and foreign manufacturers by phasing out the high corporate tax from 30 percent to 25 percent within a period of five years and bring the country in the bracket of Asian average corporate tax of 22-23 percent. In the Fiscal Year Budget for 2017-18, the Central government of India reduced the corporate tax by five percentage point from 30 to 25 percent for MSME ( Micro, Small and Medium enterprises), whose annual turnover is up to Rupees 500 million ( US $ 7.2 million at the current exchange rate).
To fuel America’s manufacturing muscles, President Trump went one step ahead of Modi to propel inclusive growth — he scrapped TPP and discouraged free trade deals. Trump is following carrot and stick policies to bring back American investment in USA, and said that TPP was not in the interests of the USA. He has also warned of a border tax on cheap American products made in Mexico.
Trump was assertive to invoke an import substitution policy and tough immigration policy for the Mexicans, as well as restrictive policies for IT professionals, who are killing tens of thousands of American jobs in the Silicon Valley. His threats to impose a 45 percent tariff on Chinese goods, renegotiate NAFTA and relook at HI B visa are the draconian acts to bruise cheap imports and supply of cheap human resources to the USA.
For India, inclusive growth is not a new concept to underpin growth. It was adopted in the 11th Five Year Plan ( 2007-08 to 2011-12). The aims of inclusive growth were to alleviate poverty by focusing productive employment opportunities to the educated working class and make large investment in infrastructure.
However, contrary to Trumps’ fuming, imports substitution in India was to develop a socialistic pattern of society. This was, however, done away with the reforms in 1991.
Therefore, while Trump is on the move to make America great by pursuing inclusive growth through protectionism, Modi orchestrated the Make in India initiative, reposing confidence on the strength of large domestic demand. In these perspectives, there are little chances for bitterness between Trump and Modi, even though India has a surplus trade balance with the USA.
The convergence of Trump and Modi to boost inclusive growth will likely leave globalization on the backburner. China, Japan and Asian NIEs (newly industrialized economies) are the real beneficiaries of globalization. The prime reason for their growth is the free trade deals. The concept of a European model of growth was debilitated by BREXIT and there may be more exits are in the offing. Thus, given Trump’s cudgeling of globalization, inclusive growth will precede globalization in the new era of global growth.
As matter of fact, Trump’s protectionism and anti-globalization may benefit India. The scrapping of the USA’s membership in TPP may prove a boon to India, as India is not a member of TPP. As a result, concerns were looming large over India’s trade with the USA being the major partner country of TPP. USA accounts for 14 percent of India’s world exports.
With the USA leaving TPP, this will leave the trade block dormant. There are three active members in TPP, who are significant to drive Modi’s Act Asia policy. They are Singapore, Malaysia and Vietnam. Analysts were concerned of the trade and investment diversion of these countries under TPP. Now, with TPP turning into a lame-duck proposition without the USA, trade and investment opportunities with these three countries will resurrect.
Textile was the biggest threat of trade diversion for India. It is the single major item of India’s world export and the USA accounts for 40 percent of India’s total export of textiles. With the duty preferences provided to TPP members in USA market, threats were mounted for the negative impact on India’s export of textiles to USA. Vietnam would have been the most beneficiary and unleashed tough competition to India’s export of textiles in the USA. Vietnam is the second biggest exporter of ready-made garments to the USA (after China)
In fact, the charm for growth by globalization has ebbed. The Economist said, “The world is loosing the taste of global business”. India’s success of growth based on inclusive growth, coupled with protectionism, usher in a new role for India in global growth. In other words, the global growth will face two challenges – inclusive growth and globalization.
* S. Majumder, Adviser, Japan External Trade Organization (JETRO), New Delhi. Views are personal.