Prospect of India-US Trade War

The US has withdrawn India’s preferential trade status as a punitive measure after President Trump repeatedly called India a “Traffic King” for imposing high duties on the US imports. In his address to the Conservative Political Action Conference in Washington DC on 2nd March, Trump cited his oft-told Harley Davidson example to make a point about India, saying, “When we send a motorcycle to India, they charge 100 percent tariff…when India sends a motorcycle to us, we charge nothing.” The claim was found to be true, although Harley-Davidson has largely bypassed tariffs by assembling its bikes in India.

Donald Trump referred to India as a “very-high tariff nation” and demanded for a “reciprocal tax” on goods from India in keeping with Washington’s concerted attacks on India’s trade stance. This incident becomes imperative as it captures the idea that for the first time, Trump administration has targeted what it considers as unfair trade practice by India, especially after it has sought to cultivate India as his strategic partner.

India’s tariffs used to be high till the late 1990s, with the peak customs duty (the highest of the normal rates) on non-agriculture products steeply coming down from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently to 20 per cent in 2004-05 and 10 per cent in 2007-08. According to the WTO (World Trade Organization) data, India’s average applied tariff is around 13 per cent and it plans to move towards the ASEAN (Association of South East Asian Nations) tariff rates progressively (approximately 5 per cent on an average). There has, however, been a move to increase duties on a number of items by the NDA government over the last five years.

Washington argues that India has not reduced the basic customs duty in the past six years and maintains high tariff peaks on several goods, including flowers, natural rubber, automobiles, motorcycles, alcoholic beverages and textiles. India recently ­announced changes to its ­e-commerce rules that are considered detrimental to American ­giants such as Walmart and Amazon.

India is the world’s largest beneficiary of the Generalized System of Preferences (GSP) which dates back to the 1970s, and ending its participation would be the strongest punitive action that the United States has taken against the country in Trump’s regime. Trump has complained about India’s high tariffs on American goods and about the U.S. trade deficit with India, which stood at $27.3 billion in 2017. India is GSP’s biggest beneficiary, which was set up to promote trade from developing countries. Currently under the GSP, Indian exports worth 5.6 billion dollars of 3,500 products enter USA duty free. Most of these exports are from MSMEs (Medium, Small and Micro Enterprises). According to the latest government data, exports from India to the US under GSP rose from $4.58 billion in 2015 to $5.58 billion in 2017. However, India seems to be downplaying the impact of this removal of the preferred trade status. This is evident from the trade minster, Suresh Prabhu’s statement that the benefits under the GSP were “insignificant”.

Two petitions have been filed by the American lobby groups—the dairy industry and the medical device sector—both of which believe that India should lose its GSP benefits as there are “Indian trade barriers” affecting exports in their sectors. The National Milk Producers Federation and the US Dairy Export Council, two American lobbies have mentioned that all imported dairy products must be derived from animals that have never consumed anything containing “internal organs, blood meal, or tissues of ruminant origin” since 2013. The primary argument put forth by the Indian government being that it should not hurt the religious sentiments of the people.

The second American lobby group which had sent a petition to the United States Trade Representative is the Advanced Medical Technology Association (AdvaMed). It believes that India’s benefits under the GSP should be withdrawn in light of the country’s failure to once again “provide equitable and reasonable access to its market for medical devices”. AdvaMed is upset over India’s recent moves towards price controls on coronary stents and knee replacement implants, with signals that price caps for additional life-saving and life-improving medical devices may be forthcoming. Their primary argument is that these price caps prevent US manufacturers from being competitive and will inevitably cause the American imports to reduce in the future.

The Modi government’s position is “based on providing its citizens with equitable and affordable access”. Additionally, India’s price caps don’t single out American companies. Small-scale Indian businesses have shown concern over the move as they feel China will be ready to swoop in and take their place to supply goods of MSME category.

The United States re-imposed sanctions on Iran, last November, in a dispute over Tehran’s nuclear and missile ambitions, after President Donald Trump pulled Washington out of a 2015 nuclear deal between Iran and six world powers. Subsequently, the United States granted Iran’s biggest oil customers—China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece—waivers that have allowed them to continue limited imports. Washington is putting pressure on various governments to eventually reduce purchases of Iranian oil to zero. The first round of waivers expires around May 4. India wants to keep buying Iranian oil at its current level of about 300,000 barrels per day (bpd), as it negotiates with Washington about extending a waiver of US sanctions. New Delhi is seeking permission to still buy Iranian oil at current levels of 1.25 million tonnes per month, equal to about 300,000 bpd. Amidst India-Pakistan tensions, this move to open up the possibility of a trade war with India, at a time when US-China trade war seems to be coming to a close, is an anxious position for India to be in.

Picture Courtesy- Hindustan Times

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