NEW YORK – First came a hearty congratulatory phone call from President Donald Trump, to Prime Minister Narendra Modi. Followed by a tweet endorsing Modi’s fabulous victory in the Parliamentary elections, for a second term to helm India’s government.
‘Just spoke to Prime Minister @NarendraModi where I congratulated him on his big political victory. He is a great man and leader for the people of India – they are lucky to have him!’ tweeted Trump on the glad tidings.
The India and US governments put out a statement on what transpired in that phone call between Trump and Modi.
“They also agreed to work together for further enhancing the close and strategic partnership between the two countries,” the statement said. The two leaders also agreed to meet at the G-20 Summit, to be held on June 28-29, in Osaka, Japan.
It seemed Modi’s second innings had begun on a strong note with the United States.
A day later, after all that bonhomie, came the sharp rebuke and snub from Trump.
Last Friday, without much ado, the Trump administration announced it’s ending the Generalized System of Preferences (GSP) for India.
GSP is the largest and oldest US trade preference program. Established by the Trade Act of 1974, GSP promotes economic development by eliminating duties on thousands of products when imported from one of 120 designated beneficiary countries and territories. Under the GSP, India was able to import as much as $5.6 billion worth of goods annually to the US, without any tariff.
Starting June 5, 2019, that trade preferential treatment for India came to an end.
The trade concession allowed India to export almost 2,000 products to the U.S. duty-free, Bloomberg reported, citing unidentified sources. Now, those products face up to 10% tariffs.
“I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” Trump said in a proclamation issued by the White House, a day after his proclamation of Modi as a ‘great man’.
A day later, the Indian government issued a statement, which while not indicating retaliatory measures, made its displeasure clear. The message also showed willingness to work with Trump on a path that would restore normalcy. Or, perhaps, it was just resignation to the fact that with Trump, it was like hitting one’s head on a wall while negotiating terms favorable for both sides.
“In any relationship, in particular in the area of economic ties, there are ongoing issues which get resolved mutually from time to time. We view this issue as a part of this regular process and will continue to build on our strong ties with the US, both economic and people-to-people,” the statement from India read.
CNN reported tensions between the two countries have increased in recent years over trade. And perhaps, is a reason for Trump’s strong action on India, who now join a bunch of nations targeted by Trump in his tariff war to what he views as disparity and imbalance in trade.
Trump has repeatedly slammed Indian duties on US goods, including on motorcycles. In a letter to Congress back in March, Trump signaled his intentions to remove India from the GSP and accused the nation of unfairly shutting out American businesses.
India was one of several countries affected by US steel and aluminum tariffs last year. The Indian government announced it will impose tariffs on US goods worth $240 million, but postponed putting them into effect several times.
Reuters reported that India may still hit back at the US, if things don’t go smoothly in talks between Modi and Trump, in Japan, later this month.
India, the world’s biggest buyer of U.S. almonds, has threatened to raise import duties on the nuts by 20% and increase tariffs on a range of other farm products and U.S. iron and steel, in retaliation for U.S. tariffs on Indian steel. These tariffs have been delayed several times, and are currently scheduled to come into effect on June 16.
Bloomberg noted that while an option is to raise tariffs on a slew of U.S. goods as retaliation, India may not choose that considering the benefits withdrawn by Trump were not mandated by any global pact and were offered voluntarily by Washington, according to unidentified sources. Any counter tariff measures could fall foul of World Trade Organization norms.
The issue was also discussed yesterday, on Thursday, when Piyush Goyal, India’s new trade minister, met local officials and trade bodies; but as of press time, there were no reports as to what was discussed in the meetings.
India’s commerce ministry spokeswoman Monideepa Mukherjee declined to comment, reported Bloomberg.
The new tariffs on India will hit a slew of products, including imitation jewelry, leather goods, pharmaceuticals, chemical and plastics and some farm items.
The new tariffs will apply to ‘large residence’ washing machines and solar cells and panels from India, reported CNN.
The U.S. has separately called for India to remove what Commerce Secretary Wilbur Ross last month described as “unfavorable treatment” to U.S. companies and an imbalance in India-U.S. trade.
“Given the rising tempo of U.S.-India strategic ties on matters chiefly pertaining to defense interoperability, India may take a tempered approach,” said Kashish Parpiani, fellow at Observer Research Foundation, a private think-tank, reported Bloomberg. The U.S.’s arms exports to India rose by over 550% in the five years to 2017, making it India’s second-largest arms supplier, Parpiani said.
India on its part has tried to reduce the $21 billion trade surplus with the U.S. by stepping up imports from America, but obviously, not to the satisfaction of Trump.
Trump’s displeasure, and at the heart of the trade dispute with India, is permissions to sell medical devices and certain dairy products to Indian consumers. It’s a volatile political issue too for the ruling NDA government, if they were to succumb to Trump’s terms.
The US wants American firms to be able to bypass India’s strict price controls on healthcare products, imposed to keep the cost down for poorer citizens. It also wants businesses to be able to sell cheeses from animals which have been raised on feed containing bovine extracts – a proposition that the Indian government says would offend the religious and cultural sensitivities of many of its citizens, reported the BBC.
Hindus, who make up about 80% of the Indian population, consider cows to be sacred and many do not consume beef or its by-products.
BBC, in a report, gave an insight into the job losses that would likely be forthcoming as a result of the tariffs.
Take for example Indian entrepreneur Sanjay Leekha’s three-story factory in Faridabad on the outskirts of Delhi. The 33-year-old family-owned business – along with thousands of other Indian manufacturers – will become the latest victim of the Trump administration’s effort to reshape its international trading relationships, the report noted.
Leekha’s firm, Alpine Apparels, produces as many as 40,000 handbags a month. But US buyers of his bespoke products are already asking the firm to absorb the cost of higher levies by reducing its prices, BBC reported.
If he is forced to do that, Leekha says, he will eventually have no choice but to lay off some of his 1,000 employees.
The hope in Washington is that the blow to Alpine, and its fellow former GSP beneficiaries, will prompt a cry of anguish from Indian businesses that will lead to a rethink in Modi’s new government.
The Coalition for GSP, a US-based campaign group, say the Trump administration’s retaliatory decision will ultimately prove counterproductive, and cost American businesses over $300m in additional tariffs each year.
In their written testimonies to the US government, some of the country’s largest businesses seem to agree.
Retail giant Walmart, for example, says India’s membership of the GSP program benefited its US customers “by removing millions of dollars of duty costs that act as a tax” on its products, reported BBC.
Leekha says the impact will largely be felt by Indian suppliers, who will have become less competitive overnight after being “singled out” by Donald Trump’s team.
“The removal of GSP is only happening to India and Turkey, giving other developing economies an economic advantage,” he explains. Exporters like him, he insists, will be forced to slash their profit margins.
“This will lead to us having to say no to some business, or some business actually moving away from us to others countries which are still availing themselves of the GSP benefit, countries like Cambodia and Indonesia,” he told BBC.
The American Apparel & Footwear Association, which represents brands including New Balance and Adidas, has warned the US government that the withdrawal of India’s GSP benefits would leave companies with “no choice but to return to sourcing from China.”
Despite the suffering of thousands of manufacturers, the Indian government will be wary of starting a trade war with Trump, which could turn nasty down the road.
Ajay Sahai, director general of the Federation of Indian Export Organisations, made the point that overall the end of GSP was only small change for India. He estimates the net tariff advantage of being a GSP member at a mere $260 million.
Although trading under GSP has been “a win-win situation for both countries,” Sahai told BBC that “on a macro level, we can say the impact [of ending India’s GSP membership] will be minimum”.
India will be watching with interest Trump’s negotiating tactics with Mexico, to not impose tariffs to as much as 20% on all Mexican imports to the US.
Mexico and the United States are discussing significant changes in asylum rules and border enforcement that could forestall Trump from imposing tariffs, officials from both countries said Thursday, reported The New York Times.
The changes under consideration would give the United States a greater ability to reject requests for entry from migrant families fleeing violence in Central America, according to those officials. Under the new arrangement, migrants would be required to seek asylum in the first foreign country they enter after leaving their homes.
Guatemalans looking for refuge would have to apply for asylum in Mexico rather than the United States. And those fleeing El Salvador and Honduras would have to seek asylum in Guatemala rather than continuing on to Mexico or the United States.
If a deal is reached, Mexico would also allow an expansion of an American program in which those seeking asylum in the United States are required to wait in Mexico while their legal cases proceed. About 8,000 migrants are waiting in Mexico, but under the agreement, that number could grow, reported the Times.
It’s likely India might agree to more concessions for US goods, in return for greater trade with the US.
A bear hug from Modi for Trump in Japan is not likely to do the trick, this time around. India is on the back foot, with no clear path to resolve the issue. It’s a wait and watch game, for now.