The trade row between India and the US

Days after the US terminated India’s designation as a beneficiary developing nation under the Generalised System of Preferences program (GSP),India retaliated by imposing higher tariffs on 28 US products.The penalties run as high as 70% and include highly consumed agricultural goods such as almonds, walnuts and apples as well as chemical and finished metal products.
 
The strain in trade ties between the two economies comes when global economic growth rate is projected to slow down as trade tensions constantly brew between US and China, weighing heavily on business confidence and investments. The decision to levy tariff on US agricultural products appears to be strategic – politically it is an important constituency, but India needs to tread carefully. While failure to react could be construed as a sign of weakness, there is a genuine concern that the move could provoke further action. And given that Modi government is keen to pursue an economic foreign policy, it would be in the interest of India to avoid a trade confrontation.
 
A trade war starts when a country attempts to protect its domestic industry and create jobs. Trump’s directive in levying trade tariffs is part of his strategy of wanting to reduce the hefty trade deficit that US has with India,to create more jobs. But what began as a tool to cut down of US trade deficits have quickly morphed into a defining feature of the trans-Pacific trade. Though tariffs are known to work in the short term but in a trade war scenario, all involved countries lose out from lower productive efficiency (in some ways, this depresses economic growth for all) and higher consumer prices.
 
Such a scenario would play out like a double edged fork for India. On the one hand, India would suffer a lowering of the exports and investments, given that US occupies a sizeable share in FDI equity inflows to India, on the other hand straining of economic ties could spread over to other aspects of strategic partnership that both countries share.
 
Apropos, the US perhaps remains the most consequential partner in India’s Indo-Pacific strategy and several US documents including the recent Indo-Pacific strategy released by the Department of Defense, laud the convergence of interest and values between the two countries further a “free, open and inclusive and rules-based Indo-Pacific.”
 
To be sure, India has much at stake in ensuring that economic ties with its largest trading partner do not end up foundering on the rocky shoals of the current US administration’s approach to trade and tariffs. Trade is not and must not be viewed as a zero-sum game. In this regard, negotiations imply a “give and take” between countries and often require a long-term perspective. India’s great power relations are at a turning point where New Delhi has to adroitly manage its security and economic imperatives. Though the trade tariffs could work as a bargaining chip for India in the short run, it would be India’s own interest to manage the relations with US.
 
India Outbound
June 21, 2019

 
 

source https://indiaoutbound.org/the-trade-row-between-india-and-the-us/