US talks tough on trade, India will have to fall in line PDF Print E-mail
Thursday, 07 March 2019 04:30
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India can use retaliatory tariffs, but keep in mind that China which has far greater leverage with US is close to accepting its terms 


Given the total Indian export basket affected by the US decision to eliminate GSP preferences is just $5.6 billion out of India’s total exports basket of $300 billion—of which that to the US is $48 billion—it is possible to argue, as the Indian government has, that the impact of president Trump’s decision to scrap GSP benefits to India is actually quite limited. That view gets reinforced when you look at the value of the benefits India gets—by way of concessional import duties into the US—since that adds up to under $200 million. Indeed, the obvious question that comes to mind is why India even continued to avail of these benefits that are really meant for countries with a much lower per capita income. And since India knew it was ineligible for these benefits—US goodwill ensured the benefits were not immediately withdrawn—it had to prepare for their withdrawal; that meant either improving the competitiveness of Indian exports so that the benefits were not required or negotiating with the US for more time. Right now, with Indian exports not so competitive—due to poor labour and other policies in the country—and margins on them wafer-thin, withdrawal of the benefits could ensure that a large number of Indian products can be priced out of the US market.

What is important about president Trump’s decision to deny India GSP benefits is that this comes at a time when most Indian policymakers and analysts were looking at big gains emanating from the escalating US-China trade tensions that, at one point, looked like they were spiralling out of control; even figures of $500 billion on which trade sanctions would be imposed were being talked of after the initial sanctions on $60 billion of Chinese exports to the US. But with the Chinese government realising that it had too much to lose from the hostilities, a US-China pact may soon be signed, with the Chinese likely to agree to, amongst others, live by US rules on intellectual property protection. In other words, forget about India getting a larger share of the US imports market, the hope that US manufacturers would relocate out of China—into India—to escape punishing US import duties, on, say, Apple phones made in China has been belied.

And while India does have a $21.2 billion trade surplus with the US in FY18—and $10.5 billion between April and November FY19—it needed to remind its US interlocutors that a lot of this was made up by, for instance, Indian tourists spending $13-14 billion in the US each year, by Indian students spending upwards of $5 billion in tuition and living expenses each year, of large aircraft orders such as the $22 billion by SpiceJet; all of this, and more, were part of a fact sheet put out by the US government when prime minister Modi visited the US in 2017, a sign of how much the US valued India at that point. Indeed, if large US manufacturers were located in India, chances are India would get a better deal from the US in much the same manner that China did for so many years; India has not, in this context, even been able to finalise a deal for Apple coming into the country to set up manufacturing facilities here. Apart from the U-turn in the e-commerce policy that hurt US investors like Amazon and Walmart, India adopted an unnecessarily hard line on prices of high-cost US stents that only the well-heeled in India use. Its policy on Monsanto—putting price controls, saying the patent was illegal and also trying to control royalties—was also ill-conceived since Indian farmers lost out as well due to this. In short, while not every US demand for lower tariffs is legitimate, India’s stand was unnecessarily provocative; and if India is looking at building a strategic partnership, such as one to contain Pakistan, it has to realise that some strategic deal-making is the order of the day.



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