Conclave on Free Trade Post Pandemic: National vs Rationale

- MMA and KAS India

While the current focus of the policy-makers is on battling the second wave of COVID-19, it is the need of the hour to come to a prognosis of what a post novel coronavirus world may look like for the industry and masses. The pandemic has undoubtedly added momentum to arguments of economic developments, trade, foreign policy and even multilateralism. Hence, it is imperative to temper optimism with pragmatism, acknowledge the opportunities and challenges, and identify actionable measures. These reform initiatives will provide an impetus to the government and industry thought-leadership to work in partnership for the nation to begin talking about the forgotten idea of a 'Five-Trillion Dollar Economy' all over again. To have a robust discussion on these issues, the Madras Management Association, Chennai in partnership with the India Office of the Konrad-Adenauer-Stiftung organized a hybrid conclave on the topic "Free trade post-pandemic: Rationale vs. National" on Saturday, 17th April 2021.

Key take aways:

  • After Mr. Mahalingam welcomed the speakers and the guests, he cited the PWC report’s conclusion to set the tone and kicked off the event with the launch of the MMA interactive app.
  • Mr. Rimmele, in his opening remarks, pointed out that being rational is not necessarily being anti- national or vice versa and saw no contradiction in both the concepts. He, while bringing in the European experience, said that it is now up to all of us to shape the globalization in a way that brings us closer together and makes the world safer and more sustainable for generations to come.
  • In his keynote address Prof Heribert Dieter said there will a reshaping of globalisation and not an end and that change will be primarily due to the geo-political conflict with China and not Covid and that there were no simple answers to how to deal with China.
  • He was sceptical about China and optimistic about India. China is drowning in debt and has significant demographic issues with a huge decline in births to the levels of 1949. The world is turning away from China but China too is turning away from the forward.
  • While in India, in the last 15 years, remarkable changes have happened, for example infrastructure development, reduction of tariffs, opening of Indian economy and trade liberalisation resulting in a great rise of GDP. PM Modi’s govt is changing the rhetoric on trade policies. Mahatma Gandhi had said that there was more to economic development than material riches as there were spiritual and other dimensions and PM Modi sounds more and more like that.
  • It is a historical fact that Britain supported Free Trade AFTER their factories became competitive internationally and till that point of time, they too were sceptical of free trade and that they were also imperialistic at the same time. Also, the last year’s Indo-China conflict has altered and contributed to the new found spirit of fierce competitiveness in India.
  • All over the world, the governments are looking for ways to reduce their dependency on China including Germany, USA, Australia, Japan and others. But can Indian economy achieve an 8% plus growth from a size of 3 trillion $ with inward looking policies?
  • And it will be very difficult for China to return to the pre-pandemic state of free trade and economic growth given the still closed borders and the underlying fear of Xi about ending up like Mikhail Gorbachov. The new Chinese economic strategy is of dual circulation which implies that autarky is good for China but not for the rest of the world. Apparently, China has decided to decouple from the world before the world has decided to do so and this behaviour goes back a long time in the Chinese history. Ironically, it may even stop teaching English in schools as it may not even be needed anymore.
  • He concluded by saying that there are different perceptions of free trade and it may carry different meanings for economists vis-à-vis politicians. So a powerful case for self-reliance is emerging but so is the opportunity for like-minded democracies to expand the trade. The big conflict still is because of China and so shall we look at a new WTO sans China or plurilateral trade agreements between like- minded countries? The UK has applied for membership of TPP or the former CTPP- so should EU or India too? The fact remains that a closed door policy will do more harm than good to India!
  • Mr. Gurumurthy started by pointing to the complexity and multi- dimensionality of the topic and preferred a ‘Helicopter approach’ by looking beyond the horizons. Citing Francis Fukuyama and Amartya Sen, he pointed out that free trade was a product of democracies. We now have a situation that liberal democracies are under stress and also not in a great shape like the USA and these democracies were in a state of fatigue not because of China, but due to their own lack of transparency. So the world order has to change in terms of commercial as well as economic terms and not just politically. So now, not just the low price will play a role but also the safety aspect. There is a virtual collapse of the WTO, almost the same conclusion to which Prof. Dieter has come. It has always been clear that China was never a market economy but the political discourse was trumped by economic considerations. So the emerging world will be bifurcated between democracies vs autocracies broadly in a ratio of 46% and 54% respectively. All the assumptions of the world founded on the pre pandemic times have to change in the post pandemic times and the environmental as well as climate issues have to be factored in because economies have borders, but not the environment and climate! Nature is not just a source but should be treated as a partner. We need a more durable philosophy of life as history has proved that any philosophy which is not centred on Human beings is transient and we may have to unlearn a lot before re-learning!
  • Dr. Sunder Ramaswamy saw 4 crises that the world is grappling with due to the pandemic using the analogy of 4 horsemen of the apocalypse of Condoleezza Rice, which were nativism, populism, isolationism, and protectionism and that a new global architecture was needed indeed. He quoted Winston Churchill and tweaked it by saying that Free Trade or capitalism and Democracy were similar in the sense that they both had tremendous flaws but still were the best options on the table. At no point in history have there been 8 billion people in the world and that has repercussions for resources and environment. While quoting Gandhi- An eye for an eye will make the world blind, he said acting multilaterally was the only solution.
  • Prof. Arun Kumar made a presentation which essentially argued that impact of the pandemic is both global and even more so on the Indian economy because of the largeness of unorganised sector and the kind of supply chains that existed in India and globally. Service sector comprising of 55% of GDP too was hard hit. There is huge uncertainty and a rethink on nature of globalisation was needed. The virus, as climate change, knows no borders and the countries need to act collectively and public-private sector needed a balancing out. Covid has put a magnifying lens on the pre-existing problems of inequality, weaknesses in trade, urban poor etc. We are a ‘Collectivity’ and needed to strengthen it was his conclusion.
  • Mr. K. Kumar focussed on firms of India, owned by Indians and located in India. He was of the opinion that we should look at integrating with the global supply chains even more as a matter of compulsion and not choice because that was essential for getting the latest technology, having a manufacturing global brand, and to be able to access, markets in India and abroad for being Atmanirbhar at the same time.

Fireside Chat:

  • Air Marshall Matheshwaran introduced the pandemic statistics while questioning the timing of vaccination-diplomacy and questioned democracy as a system in handling the pandemic.
  • Prof. Dieter said the consumerist nature of human beings will continue in travel, consume, eat out and even in a more enhanced manner.  He did not agree that only countries- non democracies- have dealt better with the crisis that NZ, USA, UK were good examples. On decline of the WEST, he countered Mr. Gurumurthy’s assertion and said this debate is more than 50 years old and the values or ethos of democracies are there to stay.

Next: Can the supply chains shift out of China?

  • Mr. K. Kumar said the efforts to improve ways of trading in global composites will continue in the midst of Industry revolution 4.0 and that China will remain a powerful player for some time to come and one could only manage or go around it.
  • Prof. Arun Kumar on the need of a strategy based on R and D to cut out the Chinese from the supply chains. There was no short cut and India did not spend enough on it or on education.
  • Mr. Kumar said that China is not just the supply capital but also the demand capital and that it will difficult to cut China out from supply chains.

Next: Low tech jobs will be more in demand. Indian industries will take the short cut and demand protection rather than compete?

  • Mr. Kumar opined that protectionism leads to inefficiencies leading to lessening of demand and so it was not a good idea.

Next: Do the industries coming to China also bring their dual circulation system or manufacturing lines and R and D to China?

  • Prof. Dieter said the German corporate experience is not good as Siemens who did the same ended up competing against a Chinese competitor after a point of time. So the power of China as a market may be overrated.

Next: Given the recent budget, would the disinvestment process will be taken forward?

  • Indian economy had already lost steam 6 months before the lock down and so it only exacerbated it. The 5 trillion dollar should be shifted to future and a series of budgets, not one is needed to go back to predicting as to WHEN will we be a 5 trillion economy

Next: BRI is being pushed aggressively. So are the Chinese on the right track?

  • Prof Dieter said BRI strengthens the Chinese influence in Asia but the way it is financed; it is doubtful the Chinese plans would work.
  • Prof. Arun Kumar- China has spent a lot of money on R and D like in 5G and the world has to do the same if they want to stop China.
  • Mr. Kumar- current model of BRI has run out of steam and China is looking for ways to make it work.
  • Dr. Ramaswamy- On China, we need to watch the American response but there was an opportunity for India to take advantage of even post Trump in the now Biden presidency.

Peter Rimmele