Old enmity is back to blacken Indian and Chinese trade relations

Indians are in a rage about China, about cheap goods dumped into their markets, undermining domestic manufacturers and putting workers’ jobs at risk.

Forget American steelworkers, Italian seamstresses and French lacemakers. The new victims of the Chinese manufacturing juggernaut are Indian — toymakers, textile firms and chemical manufacturers demanding government action. Their Government is listening; India is on the warpath over unfair trade and its target is a neighbour and an old political rival. Between July and December last year, India launched 42 anti-dumping investigations, more than any other member of the World Trade Organisation, with China the main target, accounting for 17 cases.

As the recession bit, India ratcheted up the pressure with a six-month ban on imports of Chinese plastic toys, which had taken almost two thirds of the Indian market. There were accusations of safety problems, such as lead paint, until toxicologists found that Indian-made toys were equally hazardous. In June, India announced safeguard duties of 30 per cent on aluminium imports from China, a five-year duty on Vitamin C and an extension of a ban on dairy products. China has protested vigorously, saying that India was erecting “invisible trade barriers” and “shutting the door on Chinese goods”.

India’s aggression against an ally in the Doha talks puts into new light the fuss over President Obama’s decision to pander to American unions. Last week the President sided with the United Steelworkers union to impose safeguard tariffs on Chinese car tyres. It was political, a gesture while the President had his back to the wall over healthcare reform and the floundering economy. So weak was the case for tariffs that America’s tyremakers did not support the dumping claim.

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But the President’s move sent a shudder down the backs of officials at the World Trade Organisation (WTO), where hopes were awakening that the Doha Round of trade talks, scrapped in July last year, might be on the point of revival. Doha fell apart over its core objective — the removal of trade barriers and subsidies in agriculture. The agenda was almost entirely agreed until it was scuppered in an eleventh-hour row between America and India over safeguard measures.

These allow a state to impose temporary tariffs to combat import surges. Mindful of the political power of its rural poor, India dug in its heels and the US, in mid-presidential election campaign, was not prepared to give India the protection it wanted in agriculture without concessions over trade in manufactured goods.

India took the blame for wrecking the Doha talks and an agreement that developing nations had hoped for. Delhi now seems to have regrets and this month called for a revival, hoping to lure the Obama Administration back to the table. The European Union and Brazil, a keen supporter of Doha, are leaning on Washington, arguing that tariff cuts are what the world needs to get economies moving again.

But in America we have the rotten Chinese tyres and in India we have the lousy Chinese toys.

In Whitehall and in Brussels, there is some political will to make Doha happen. The EU’s “offer”, based on reforms to the Common Agricultural Policy, appears to be acceptable and the finger is being pointed squarely at Washington as the main spoiler. Can President Obama persuade Congress to back a trade deal that offers nothing tangible to US voters? The answer has to be — no.

But nothing is ever so simple. Americans (and Europeans) had little to gain from the Doha Round and hoped for side-deals that might sweeten the pill, such as liberalisation in the trade in services and protection for products of special geographic origin (wine, cheese etc).

Brazil, the biggest tub-thumper for Doha with its enormous grain exports, is adamant in opposing side-deals, but the EU hopes that America could be persuaded with a commitment by WTO members to follow Doha with a deal on services and investment. For India, services are its current and future wealth. The Bangalore software services bonanza has dragged India from its rural despond into the modern economy. A deal liberalising cross-border trade in services would be to its huge benefit.

Bitter experience of decades of postwar stagnation tells India’s leaders protectionism leads nowhere. India-China trade reached $52 billion (£31 billion) last year, but has since plunged by a third. The rivalry with China is intense and made worse by a history of border disputes.

If there are voices in Delhi seeking to revive Doha, it is because they know they must yield in order to gain advantage. India cannot win a war with China over manufacturing, but it might win something else, if it boxes clever.