US Trade Threat Spreads to India

US President Donald Trump’s trade war has spread to India, where, in a significant ratcheting up of trade tensions between New Delhi and Washington, the Indian government has formally notified the World Trade Organization of its decision to hike import tariffs on 30 items from the US worth US$240 million. The retaliatory barriers are equal in value to US tariffs slapped on steel and aluminium from India by the US administration in March.

US President Donald Trump signed an order imposing a 25 percent tariff on steel imports and a 10 percent tariff on aluminium imports, citing `national security' as one of the key reasons behind the move. However, a frazzled Indian government requested the US for exemption from these tariffs as it felt India posed no security threat to the US. When Washington didn't relent, India dragged the US to the dispute settlement mechanism in the WTO.

Expectedly, India’s decision to go to the WTO hasn't resonated well with Washington, which sees it as a “huge negative.” On May 9, the US filed a counter-notification at the WTO against India, alleging that India’s market price support programs for wheat and rice breached New Delhi’s allowable levels of trade-distorting domestic support.

"The US has a slew of trade-distorting support programs for rice and other items and is targeting India after blocking the permanent solution for public stockholding programmes for food security," said Prabhat Pheri, a trade analyst with the Reliance group, one of India's largest private players.

Pheri adds that the Trump administration has been threatening action against countries that do not improve the trade deficit with the US. In 2017, the US had a trade deficit of US$22.9 billion with India. Washington also launched a trade dispute against India on duty drawbacks and other programs for Indian exporters.

"The US also wants to deny the generalized system of preferences preferential market access for Indian textiles, leather, and other products," added Pheri. The US Trade Representative, Robert Lighthizer, the man tasked with ‘fixing’ the global trade picture for Trump, also wants India to “deliver”: reduced duties on Harley-Davidson.

India's decision to begin retaliatory measures against the US surprised many – more so as Indian Commerce Minister Suresh Prabhu returned from the US last week after a series of meetings brimming with optimism that dialogue would resolve the thorny bilateral trade disputes.

“If they wanted to take fresh action, they would not agree to talks and we would not either do the same,” Prabhu said. “Instead of measures and counter-measures, we decided to talk and resolve it out.”

Also, ironically, India's decision to levy the increased tariffs on US goods comes just days ahead of further talks scheduled between the two countries on the issue. A US delegation will be in New Delhi next week for the next meeting of the Trade Policy Forum, the main India-US trade talk shop.

The proposed tariffs on US goods will take effect from June 21 with the possibility of the Indian government slapping further hikes on more items. The new tariffs will target products like American almonds, walnuts, and apples, as well as some chemical and metal products. India said its tariff on large American motorcycles, which Trump has emphatically railed against, will also be hiked.

"India reserves the right to adjust the specific products for which [tariffs would apply], and its right to adjust the additional rate of duty imposed on such products," a government of India notification said. According to a WTO filing, exports of steel and aluminium from India to the United States are worth around US$1.2 billion. The United States sold goods and services worth US$42 billion to India in 2016, according to the US Trade Representative, resulting in a US trade deficit with India of US$30.8 billion.

However, the US-India friction has had one unexpected fallout. The Trump administration's shift towards protectionism and India's urge to narrow trade deficit with China are the driving factors in this regard. It has led China to make a strong outreach to India to address its concerns about the trade deficit between the two countries. Beijing has also promised to look into providing greater market access to its products and welcomed Indian investment in China.

Some analysts predict that given Trump's bellicosity on trade issues – evident from his ungraceful exit from TPP last year and withdrawal from the G-7 statement June 9, blaming Canadian Prime Minister Justin Trudeau – Washington will likely threaten New Delhi for enhanced market access in agricultural and dairy products, and medical equipment.

"Although India’s trade surplus with the US is little over US$25 billion with the US as compared to China’s $337 billion, Washington realizes India's potential as a big market for its dairy and agricultural products and medical equipment. The US is keen to export its heavily subsidized dairy products to India that could wipe out the livelihood of millions of poor people engaged in the domestic dairy sector," according to the Indian financial daily The Mint.

However, some feel that the situation between Washington and Delhi isn't as dire as it is made out to be. "The situation between the US and India should not be viewed as a trade war just yet,” Rishi Shah, an economist at the Center for Digital Economy and Policy was quoted as saying in The Hindu. “A possible continuation of such steps from both sides may result in more friction on the trade front. However, it must be kept in mind that the last fortnight has seen ratcheting up of trade tensions in the West and also with China as the US has imposed tariffs. Given the less than optimal nature of such policies, it must be assessed how sustainable they may be.”

Be that as it may, some feel India did right by giving the US as good as it got by dragging it to the WTO. "This is hardly the first time the US has targeted India on trade-related issues," said Aveek Basu, former professor economics, Delhi University. "In 2014 too, India had protested the US International Trade Commission's investigation into India’s trade and investment policy to identify areas where its trade policies had been hurting the US."

The US also wants India to stop what it calls export subsidy programs, claiming that they harm American workers. "These programs, which the US pegs at US$7 billion, create an allegedly uneven playing field for American workers. But India has to contest this in the WTO since it cannot do away with such schemes — what it calls "incentives."

Even if Indian exporters face challenges in the US market, they should be given enough incentives to identify newer markets," sums up an article in India Today.

Neeta Lal is a New Delhi-based journalist and longtime contributor to Asia Sentinel.