US President Donald Trump has withdrawn the generalised system of preferences (GSP) that granted tariff concessions to certain categories of products imported from India. This should come as no surprise. Though one may say the scrapping of GSP is an extreme step that was not anticipated, there has been a trade stand-off between the two countries since the US slapped higher tariffs on Indian steel and aluminium. India tried to counter it with a threat of retaliatory tariffs on 29 US goods, but kept deferring the deadline.
For a long time now, Trump has been pushing for lower tariffs and greater access to Indian markets. The businessman-turned-politician that he is, Trump has been cleverly targeting issues and symbols that strike a chord with his electoral constituency and is trying to bargain beneficial trade deals for the US. He has called India a high-tariff country several times.
And the US president had harped on the 100 per cent duty India levied on Harley Davidson bikes, thus pushing us to slash duty on high-end bikes to 50 per cent. As a developing country, India rightly got the GSP decades ago. It also has a reason to keep tariffs high on what are classified as “luxury” goods.
But India cannot live in denial over Trump’s move. Even as the news of the GSP withdrawal came, the reaction from the Indian side has been muted, calling its impact minimal. GSP impacts only $5.6 billion worth exports out of the total $50 billion to the US and the benefit is a mere $190 million. What is at stake is a trade package India hoped to negotiate with the US. India needs to negotiate convincingly on long-standing issues like farm imports, price control on medical implants, etc.
Trump forced a renegotiation of NAFTA, launched a trade war with China before settling for negotiation, and India’s hope lies there: The possibility of a negotiation. However, what is not predictable right now is the way India manoeuvres its way through the e-commerce policy and data localisation issue, two issues on which American companies and the US are going to lobby hard.