India’s tariff message to the US: Business is business
India’s retaliatory tariffs on $241 million worth of imports from the United States looked so small in comparison to the billions in play in President Donald Trump’s ongoing tariff war with China, to call them modest would be an exaggeration. It’s the first consequential step from the new Modi government on ties with the United States. As a strategic move, it was potentially a watershed moment for the message it carried for the Trump administration: it’s just about business as you had always contended and insisted.
New Delhi was on board, not by yielding to the Trump administration’s trade hawks and their growing list of demands but by firing back, not exactly how the US had expected. Even long time India watchers such as Richard Rossow of the Center for Strategic and International Studies, who reads the Press Information Bureau trade data releases with as much interest as baseball scorecards, admits to have been taken by surprise. “I am surprised India took the step of launching these retaliatory tariffs for two reasons. First, India did already impose trade barriers in recent years that could limit US exports, such as the major customs duty hikes in last year’s budget, as well as a growing range of import substitution rules. And second, India is unlikely to inflict enough trade pain on the United States as to force a reversal. If anything, this may stoke the Trump Administration to double down on enacting new import barriers against India.”
That may well happen, unless Secretary of State Mike Pompeo is able to forge an agreement during his upcoming visit to India next week. Else, there is a speculation already that the Trump trade hawks could invoke a US law — Section 301 of Trade Act 1974 — to launch an investigation into India’s trade practices as they did with China and return with an even longer list of demands going far beyond access to India’s dairy products and medical devices markets, the main sticking points now.
India may have a plan for that eventuality as well. There are reports it wants to go ahead and legislate the new e-commerce and data localisation rules that are being opposed by US businesses such as Walmart and Amazon for the former and Google, Facebook and others for the latter; and the US government, which is with them in letter and spirit, forcefully lobbying the Indian government. Could this be put on the table? It’s about business after all.
New Delhi mulled the retaliatory tariffs for more than a year after it proposed them in response to President Donald Trump’s blanket levy of 25% and 10% on all steel and aluminium imports, including those from India, in March 2018. And tried, in the meantime, to address outstanding trade issues that have defied resolution for years, which passed from one government to another. It wasn’t very successful.
But it did slash import duty on Harley-Davidson motorbikes, which President Trump had repeatedly raised to spotlight India’s tariffs — once calling India “Tariff King”. It also steadily stepped up imports from the United States, especially oil and gas, to reduce its trade surplus, another of Trump’s pet peeves. According to Indian commerce ministry data released earlier this week, India’s trade surplus with the United Stated has declined to $16.8 billion in 2019 from $21.2 billion in 2018; only South Korea has cut more among America’s top trading partners. And India was a stoically compliant partner when the United States denied another round of exemptions from sanctions to Iran’s oil buyers. It also ended its crude purchases from Venezuela, risking another long-serving supply line, at the insistence of the United States, which is trying to oust President Nicolas Maduro.
New Delhi expects in return some understanding and some more time to sort the outstanding trade issues, hopeful also of being cut some slack on account of the growing security and defence ties; marked by the signing of agreements pressed for long by the United States — Logistics Exchange Memorandum of Agreement Communications Capability and Security Agreement — increasing joint military exercises and, most importantly for the dollar-conscious Trump administration, many big ticket defence purchases.
It was hit instead in March with the announcement of the Trump administration’s intention to end India’s special trading status — under Generalized System of Preferences — that allowed it duty-free export of $6.3 billion worth of goods to the US. The termination was formalised in a presidential proclamation on June 5, the day after Prime Minister Narendra Modi’s new ministers were allotted their respective portfolios. Two weeks later, India announced the retaliatory tariffs.
The message: Business is business.