Tariffs as weapons: History has warnings

India’s pursuit of the deal with a protectionist US cannot come at the cost of its agricultural and dairy industries

Sector-specific US tariffs targeting another country's industry such as automotive parts can have drastic economic consequences for the industry and its workers. For example, in 2009, increased tariffs on tires imported from China led to a 67% drop in the volume of Chinese tire imports. However, huge tariffs, when applied to all sectors of an economy, can ruin the entire country and cause significant unemployment and social unrest, perhaps leading to regime change. In the 19th century, a 'century of humiliation' as the Chinese describe it, when the Emperor of China banned opium across the country, British traders, upset by the loss of revenue from exporting to China huge quantities of opium cultivated in India, convinced their government to wage war on China and force the country to change its trade policies. Today, any country which tries to regulate Silicon Valley's monopolistic practices, be it in crypto ventures, e-commerce, or social media, is immediately faced with huge increases in US tariffs.

When tariffs are used as a weapon against a country, they are bound to result in massive disruptions to the country's society at large. These are asymmetrical weapons that may rely more on disruptive impact than destructive kinetic effects. For example, cyber attacks on commercial information systems or attacks against transportation networks may have a greater economic or psychological effect than a relatively small release of nerve gas.

The sudden raising of tariff rates or the imposition of new tariffs is often dictated by geopolitical considerations.  The West tends to use them more to achieve foreign policy objectives than financial ones. A good example is Trump's proposal to levy a 50% tariff based on his claim that Brazil was conducting a "witch hunt" against former far-right president Jair Bolsonaro, who is facing prosecution over his alleged role in a plot to overturn the 2022 election. Another example is the imposition of huge tariffs on countries such as Myanmar, Laos, and Vietnam, all of which border China, as part of America's China containment policy. And, of course, the 50% tariff on India for buying oil from Russia.

Two of the more consequential tariff-related postings of Donald Trump on his Truth Social platform are directed at Brazil (“hundreds of secret and unlawful censorship orders on US social media platforms”) and Canada (“they are putting a Digital Services Tax on our American Technology Companies”).

Yet, Trump had no problem in banning TikTok in the US or prohibiting the use of Huawei telecommunications equipment on government networks. Trump's American Technology Companies which include Amazon, Alphabet, Microsoft, and Palantir provide a range of services and software such as digital and biometric surveillance, AI for military operations, and predictive policing technology in support of Empire – the new missionaries of the 21st century promoting greed, thought control, and consumerism in one tidy package.

In October 2022, Russia's financial monitoring agency, Rosfinmonitoring, added US tech giant Meta Platforms to its list of "terrorists and extremists". Whether it is the American Empire or the British Empire, these days, the game plan to gain entry into closed foreign markets has always been economic penetration through private companies, potentially followed by diplomatic or military intervention when those interests are threatened.

A dangerous trade-off

Given that India and the US are in negotiations to strike a bilateral trade deal, it is important for India, whose economy is mostly based on agriculture and dairy farming, to remember the lessons of history. India should recognise that the draconian US laws on Intellectual Property are really protectionism in disguise. This is especially true of the pharmaceutical sector where India is the world's foremost supplier of generic drugs to the Global South, and that Trump's plan to impose huge tariffs on this sector would have a considerable impact on the health and well-being of citizenry across the globe.

The US Tariff of 1828, which set very high taxes on imported goods, was dubbed the “Tariff of Abominations” by the agrarian southern states because of its effect on their economies and intensified tensions between northern and southern states prior to the Civil War. The 1930 Smoot-Hawley Tariff Act, enacted shortly after the Great Depression of 1929, raised tariffs on over 20,000 imported goods in an effort to shield American industries from foreign competition; it only exacerbated the Depression because the US' trading partners retaliated with tariffs of their own. I doubt very much if the EU, Japan, and the East-Asian nations will do likewise during the current crisis.

When autocrats such as Trump unilaterally raise tariffs to please their corporate sponsors and their largely ignorant support base, they rarely take into account the global impact of their policies. It remains to be seen whether India, in pursuit of a bilateral FTA with the US, will sacrifice its agricultural and dairy industries to further its aspirations to become the third largest economy in the world, ahead of Germany and Japan. If an India-US FTA were to be agreed upon without involving the agricultural sector, you can be assured the US will impose huge tariffs on the sector. The US, a 'law and order' society, is the most bellicose nation on earth.

Given that the punitive tariffs imposed on India are politically motivated, the country can retaliate by shutting down the offices of Big Tech and banning their software across the country. A small-framed bespectacled man from Gujarat rescued the country from Britain some eighty years ago. It remains to be seen if another man, also from Gujarat, has the guts to deliver India from the American Empire.

(The writer is a retired professor; he has written extensively and presented lectures on the societal and geo-political implications of technology)