Trade Wars – Developing (a) Market and Consuming (a) Market
By: Amit Bhushan Date: 25th Aug. 2019
The politics of Trade wars is heating up the global political discussions. This is likely to grow as political focus in developing countries shifts from ‘consumption' to ‘sustainable market/consumption development'. The shift is not being noted properly in the commercial news media which is rather more vocal about the US-China trade war, its causative impact or slowdown and what this may be doing to profitability of the large corporations. Then there is a slowdown or fall in exports and falling investment levels in traditional industrial units. While some slowdown could have been envisaged (on account of a multitude of factors in India rather than just the trade wars), however the concern would be more towards lack of rise on new units such as Fintechs, e-Commerce, rail, ropeways and hydro-logistics goods manufacturers etc. and may be increasing small manufacturing units (in spite of claims on telecom, electronics by the government). Basically the genesis of trade-war lied in the hunt profits by large US/global corporations rather than sustainability of those profits. This led to concentration of activities in a single country, much beyond ‘profit sustenance/sustainability' and that country's ability in capturing consumers on the back of cheap manufacturing capacity to which consumers across world shifted to. This may have political support then as people and polity wanted to deliver cheap widgets, rather than focus on development of domestic purchasing power. This however has started to change as political focus changed in other emerging markets which are now seeking to develop ‘earning capacity' (developing a market) over ‘cheap consumption' (consuming a market). The trade war is about providing them with the same and both the US and China need to pursue the same just to keep other nations hooked on to them. The new Technology and management concepts such as Industry 4.0 are just about pushing the same by distribution of manufacturing across fragmented destinations rather than concentration of manufacturing at a single location.
The developing nations would also need to figure out ways to develop industry and service sectors, or in other words - how best to develop the markets within. How these developing countries engage in trading, investments (either coming into or going out from them) is likely to undergo quite some change. So far there has been minimum development of services in most of the developing countries and this was on account of the yesteryears idea that post the primary industry growth follows the secondary industry development and leap-frogging to development of services isn't possible. However internet already seems to be changing this and in particular growth of Fintechs/e-Commerce and Retailing would further sustain development of services simultaneously with manufacturing/industry. This would cause a shift investment patterns whereby instead of just about production and related supporting infrastructure, a significant chunk of investment would sought to be attracted for service sector as well. How the developing markets develop the sector would be interesting as most likely they would first seek to grow the consumption of such services and subsequently the domestic production of the services. This would however depend upon the trading pattern and associated strategy for development chosen by individual developing nation basis domestic resources and priorities. For present, the trading environment doesn't reflect these priorities and was based on pursuit of maximizing consumption (in particular of goods rather than services). Any remedy for the so called trade war is thus unlikely. What is however more likely is accentuation of the economic priorities rather the politico-strategic based financial/economic decisions and heightened role of economics in strategy.
One of the key challenges is lack of policy innovation to push trade within amongst the developing countries themselves. Like lack of flexibility for structured push to trade in services by Asean nations, although they would remain under pressure on Goods trade front and this is likely to grow as the so called trade war amongst the US and China intensifies further. A reform from multilateral financial institutions could have been a structured push to finance a south-south trade in a much bigger way and that would perhaps help to push expansion in the developing markets. However the politico-economic reasons have ensured perhaps a much higher risk weightage being imparted to same, whereas the north-south trade which receives competition from the supplier’s credit markets, being financed at much more competitive terms and still bulk of financing flowing towards the same. Also, there is a lack of risk capital for funding service sector entities in the developing countries, who also need to have clear direction for growth for such services and therefore need a lot more handholding besides capital itself. Unless the developing countries realize the needs and become more open & inviting, their dependency on the developed partners such US, Western Europe and China would continue to remain. There might be a need for these countries to diversify their trade and investments to come out of the slowdown and efforts/outcomes is yet to be seen. Let the ‘Game' evolve….