Many reasons for Trump to ratchet trade tensions with India

While the US and China are trying to end the ongoing trade war, the Trump administration has hardened its trade policy towards India. On March 4, the US announced its intention to terminate India and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) programme, because they no longer comply with the statutory eligibility criteria. 

The Trump administration’s move against India is not isolated. Since the beginning of the Trump Presidency, US has focused on addressing the increasing trade deficit with countries like China, Mexico, Canada and others.

In doing so, the one major bone of contention between India and the US is the Trump administration’s efforts to tighten access to the H1B visa regime. The US Department of Homeland and Security has announced that this visa process will favour master’s or advanced degree holders from US universities.

This move eventually reduces the possibility of Indian engineers’ getting the US visa because Indian software firms normally hire workers with bachelor’s degree, most of them acquired at Indian universities.

At the same time, the US Citizenship and Immigration Services has also put on hold the special scheme of getting the H1B visa in 15 days by paying a fee of $1,225.

To be sure, the Trump administration has expressed disappointment with its $27.3 billion trade deficit with India in goods and services. Consequently, US efforts to raise tariffs on imported items from other countries have alarmed India, as well. All this began in early 2018 when the Trump administration imposed a 25 per cent tariff on the import of steel and 10 per cent tariff on the import of aluminum from other countries. 

In June, Trump raked up the issue of India imposing high import duties on Harley-Davidson motorcycles and warned of a similar response on Indian motorcycles.

In October 2018, Trump even described India as a 'tariff king’. In November last year, the US revoked duty-free concessions on import of at least 50 Indian products, mostly from handloom and agriculture sectors. Now comes the exclusion from the GSP list. One of arguments used by the Trump administration is that India has not made efforts to provide an equal competitive market. In particular, American dairy farmers have complained that they do not have fair access to India’s market due to high tariffs, with Gilbert B. Kaplan, the American under secretary of commerce for international trade, saying that “We need to reciprocate trade.”

The US is also disturbed by the fact that India has increased tariffs on products, including mobile phones and shoes, among others items this year. With the US presidential election a year away, Trump’s domestic compulsion to realise his promise of bringing back jobs to the US, as well as India’s decision to sign an agreement with Russia to buy S-400 missiles, may have prompted the American President to heighten trade tension with India.

Be that as it may, there is no denying that these US moves would have serious ramifications for the import of Indian products to the US. This can be gauged from the fact that India has been one of the major beneficiaries of the GSP.

In 2017, India's duty-free export to the US under the GSP was to the tune of more than $5.6 billion. At the same time, it is estimated that this move would severely impact a large number of small and medium size business in India, especially in the agricultural and handloom sectors.

While India has not yet imposed its proposed high tariffs against US products and has in fact, reduced 50 percent tariff on the import of Harley-Davidson motorcycles, New Delhi has clearly indicated its desire to adequately address US trade concerns.

At the same time, it would be unreasonable for US to expect India to reciprocate similar trade benefits that Washington provides New Delhi, especially when there is no comparison between the economic sizes of the two countries, with India still being an emerging country. But, Trump’s action should be viewed as an opportunity to develop a robust plan to effectively deal with any adverse situation. 

Author is Research Fellow, Maulana Abul Kalam Azad Institute of Asian Studies, Kolkata