For friends and foes, engaging with the Republican administration led by President Donald Trump in the US has never been easy. Having an impulsive businessman in the White House poses its own set of challenges in pursuing Indo-US trade and investment relations. But strategic relations have been a different cup of tea. The tie-up evolved robustly in the last five years owing to personal chemistry between Trump and Prime Minister Narendra Modi.
However, this bonhomie has not extended to trade in goods and services. Trump seems to have missed no opportunity in admonishing India—he claims New Delhi has an unfair trade advantage since it is running huge surpluses. And he seems to have enough on the plate to display his uneasiness and wreck bilateral trade ties that have matured over the years. Well, South Block mandarins till now have displayed amazing patience in dealing with Trump’s White House.
The latest in the rough trade relations was Trump’s decision to end the zero-tariff access to US markets beginning June 5 allowed to India for over three decades. Christened the General System of Preferences (GSP), America’s oldest preferential trade regime was not intended at accruing trade benefits. But Trump seems to have used GSP unabashedly to corner India on the trade front. Though the exports under GSP totalled $6.35 billion last year, at stake were only modest tariff exemptions totalling $260 million allowed for India. This could have easily been subsumed given India’s total exports touched $51.4 billion.
Though the US announced its intention to end tariff concessions way back in March 2019, Trump waited till Modi assumed power for the second time to sign off on the notification. There’s a big message in the US removing India from the GSP list. More than the pharmaceuticals, chemicals and jewellery exports that would come under strain, what has annoyed India’s seasoned negotiators was the rigidity displayed by the US in going ahead with the move. Patient reasoning from the Indian side seems to have fallen on deaf ears. This is not the first time the US went tight-fisted against India.
Otherwise, how does one explain America’s stand to not intervene in scores of legal cases where Indian technology professionals with H-1B visas were denied permission to switch jobs? This intransigence was on full display when the US denied spouses of tech professionals the right to work for a living. Also, the resistance to grant visas to high-value tech professionals on flimsy grounds repeatedly and the periodic increase in visa fees are against the very tenets of free trade that have always been aggressively marketed by US in the past.
America’s adversarial position got amplified when the Trump administration slapped 25% additional tariffs on steel imports and 10% on aluminium exports from India beginning May 2018. Initially, India made noises to retaliate with levies on 29 items including food and dairy items exported by the US. But better sense prevailed and it chose not to escalate the trade tensions that have built up over the last two years. Nine deadlines passed and India did not initiate counter measures in the hope that GSP benefits would be continued by Trump beyond June 5.
Now that zero tariff benefits have been ended, India has reviewed its strategy under new Commerce Minister Piyush Goyal’s leadership and decided to slap the retaliatory tariffs. Goyal has reconciled to America’s decision and vowed to make Indian exports quality and price competitive.
Apart from aggressive trade postures, what’s more challenging for Modi’s team in the second term is the US expectation of a free pass for its Harley Davidson motorcycles, whiskeys and irrationally priced medical devices like stents, dairy products, IT and communication industry items. Surprisingly enough, the US disregards that its large conglomerates like Apple, Amazon, Uber, Facebook and Google benefit many times over from India’s liberal and open e-commerce regime. In fact, these firms have reported huge business with healthy margins derived from India with fat dividend cheques written out. The sustainability of their global operations would largely depend on the business expansion in emerging markets like India. Already, this has led to a reduction in India’s trade surplus with the US.
A unilateral and self-centric US trade policy paradigm was rather self-defeating, as India’s tariff averages at a modest 7.6% and compares very well with several developing economies. More substantively, India’s tariff is within WTO mandated bound rates. Given that Trump doesn’t give two hoots to multilateral trading regimes, Indian tariffs may be royally ignored.
It’s not to anyone’s interest if this trade divide deepens further. The Modi regime will have to quickly settle festering issues with the US on priority basis. Given that a global slowdown can be expected to be worse than the Great Depression that the US witnessed in 1929-32, both sides will do well by quickly coming to terms, and should lean on each other to face the larger crisis. The US-China trade war has already bruised consumption growth across global markets. The IMF projections last month that economic growth in advanced markets including the US would be a wobbly 1.8% in 2019 should serve as a red alert for Trump.
From India’s perspective, burning bridges with the US may not be an option. De-escalating trade tensions, protecting her defensive and offensive economic interests, and fully exploiting China’s absence in certain product categories where the US has imposed prohibitive duties should be the way forward for India.
K A Badarinath
The author is a senior journalist
Email: badarinath61@gmail.com