President Donald Trump has recently called for withdrawal of India’s high import tariffs, calling them unacceptable. Trump said that India must give greater and “equitable access to US products in Indian markets”. The question is whether India should heed his call or not.
In this connection, it is important to know the theory of the German economist Friedrich List (1789-46), detailed in his book The National System of Political Economy. When he wrote this book, Germany was not as industrially developed as England and France. List wrote that when England was doing its own early industrialisation it did so under heavy protectionism of its industries. But when it had completed it, and had become the most industrialised country in the world, it was preaching free trade and laissez faire to other countries, including Germany, which was then far less developed.
List said that without protectionism, in the form of high import tariffs, the relatively smaller and weaker German industries could not compete against the bigger English industries. If a child is made to fight with a giant, the latter will floor the former in no time. The smaller and weaker German industries would be destroyed by competition with the English and French giants, unless protected by heavy import tariffs. Hence, while ensuring internal free trade there should not be external free trade, until German industries are developed enough to withstand the competition of English and French industries. Until then, if external free trade is permitted it will only result in subjugation of Germany by England and France.
An individual promotes only his personal interest, but a state fosters the interest of all its citizens
List’s theory of ‘national economics’ differs from Adam Smith’s theory of ‘individual economics’; List contrasted the economic behaviour of an individual with that of a nation. An individual promotes only his personal interest, but a state fosters the interest of all its citizens. An individual may prosper from an activity that harms the nation. Hence, the state should prohibit such harmful activities of individuals in order for all its citizens to prosper. At the same time, national interest requires that if domestic industries are weaker than those of foreign countries, they must be given protection against destructive competition with the latter.
In my opinion, India should follow the theory of List. There was no doubt a certain limited degree of industrialisation in India after Independence, but we are still far behind North America, Europe, China, and Japan. Our industries are still small compared to the industries of those nations, and if tariff duties are withdrawn, as Trump calls for, they may not be able to face the foreign competition and may collapse, leading to increased unemployment and other evils. Already, China has penetrated our markets (see my article ‘The Truth about China’ in thestatesman.com). We will then be reduced to ”hewers of wood and drawers of water ‘, as we were under the East India Company and the British rule.
The Indian government therefore should take this into consideration.
The writer is a former Judge, Supreme Court of India