Both US & India need to engage more constructively in the ongoing trade dispute, and acknowledge their mutual dependence in the changing global order.
- US and Indian officials met in New Delhi today to resolve outstanding trade issues between the two countries.
- It is reported that the US is contemplating India’s removal from benefits under the Generalised System of Preferences (GSP).
- Issues highlighted by the US include high Indian tariffs across certain product lines, data protection rules and more recently, the changes in the e-commerce policy.
- India has concerns of its own, including the changed H1B visa rules affecting its IT companies, and the decision taken by US to raise tariffs on steel and aluminium.
US President Donald Trump firmly believes that China has enriched itself by abusing the international trading system. The US-China trade war that threatens to derail global economic growth is Trump’s way of correcting the imbalance.
India would have otherwise enjoyed the US-China hostilities from the sidelines and the potential trade benefits they promise. A UN report estimates that the war could enhance India’s exports by US$ 11 billion. But as the trends indicate, Trump is not exactly pleased with India’s trade policies either, and may be taking tough measures soon.
Media reports speculate that US is looking to remove Indian exports from the “General System of Preferences (GSP)” covering 2,000 product lines that are currently imported to US without any tariffs. Fifty product lines have already been removed in November last year.
India has a share of US$ 5.6 billion out of the benefits of US$ 23 billion that accrue from US under GSP. But if these tariffs are withdrawn, it is estimated that it would cost Indian exporters around US$ 120-200 million.
Officials from both sides held discussions today to resolve outstanding trade issues led by India’s Commerce & Industry Minister Suresh Prabhu from the Indian side and US Commerce Secretary Wilbur Ross.
CONFLICT OF MULTIPLE INTERESTS
India is nowhere close to China in the global trade scenario, but the country does have a significant trade surplus with the US of over US$ 22 billion (though US trade deficit with China is a mammoth US$ 566 billion). Donald Trump has openly called out India’s ‘unfair’ trade practices in the past.
Last year, Trump heavily criticized the high duties charged by India on motorcycles like Harley Davidson. Later he told the media that Prime Minister Narendra Modi had informed him that India had slashed import duties by 50%. But he also added, “He (Modi/India) gets 50 (per cent), and they think we’re doing — like they’re doing us a favour. That’s not a favour.”
In another instance, Trump pointed out the 150% duty charged by India on US whisky, while the latter charges zero duty on Indian whisky imports. India raised the duty on solar panels to counter cheap imports from China. But ironically, it hurt the US instead, which took the case to the WTO. The US also accuses India for being lax on intellectual property (IP) enforcement.
A major recent flashpoint in Indo-US trade is the changes instituted by India in its e-commerce rules. The changes, which prevent foreign e-commerce firms from holding stake in seller entities on their platform, have seriously disrupted the businesses of US giants Amazon and Walmart (through its ownership of Flipkart). The US medical devices industry also baulked at India’s attempts to fix the price of stents.
Another area where the Indian government is clamping down on foreign companies is data localization. Payments companies have to keep their data on payment systems in India as per RBI’s rules. According to two draft policies by the government, e-commerce companies will be compelled to keep their user data in India. All internet companies will also have to ensure that the personal data of Indians does not leave its shores.
India has grievances of its own with the US raising tariffs on steel and aluminium exports and also toughening rules for H1B visas. A major flashpoint occurred recently, when US authorities arrested 129 Indian students for ‘knowingly’ getting enrolled in a ‘fake university’ to extend their stay in the country.
ARE WE MISSING THE LARGER PICTURE?
Indo-US trade has increased to over US$ 80 billion over the past few years, and the very basis of negotiation is an acknowledgement of mutual dependence. But the dilemma of democracies is that both governments have their domestic constituencies to address as well, so having contradictory objectives is not surprising.
While discussing the implications of the changed e-commerce rules announced by India, DKODING had predicted the strong possibility of reciprocal action by the US. But it’s election season in India and the Modi government was compelled to take the step to assuage traders who felt insecure about the growing clout of e-commerce giants. Undertaking unilateral measures that impact foreign companies and also raise the perception of policy uncertainty are bad for India’s ‘ease of doing business’.
Similarly, the revised H1B visa rules hurt Indian IT companies, who regularly send their employees to US on these visas. Indian nationals account for around 2/3rd of the non-immigrant work permits given to technology workers in the US. But the ratio has come down to 16% in 2018 due to rising protectionism. The changed rules include the petitions of US advanced degree holders in the lottery of the first 65,000. This would increase the number of US advanced degree holders by 16% in selected applications.
US would do well to acknowledge India’s efforts to reduce the trade deficit. US exports to India grew by 28% in the first half of 2018-19, around 2.5 times the growth in India’s exports to the US. Notably, potential export opportunities for the US include oil and gas, Boeing aircraft (US$ 39 billion over seven years) and the Sea Guardian drone in the coming years.
India is indeed a very critical market for the US going forward, and rubbing it on the wrong side is not in America’s best interests either.