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Long Xingchun: India’s tariff feud with US exposes fault lines

2019-03-13

By Long Xingchun and Zhao Ruoxi    Source: Global Times    Published: 2019-3-12


In a letter to the Congress earlier this month, US President Donald Trump signaled plans to end preferential trade treatment for India that allows duty-free entry for Indian exports worth $5.6 billion. This is another front in his trade war after the US announced 25 percent tariffs on imported steel and 10 percent on aluminum in March 2018.


Some analysts believe the latest move by Trump targets a new set of rules of the Indian government aimed at leveling the e-commerce field in India which could hurt US giants like Amazon and Walmart-owned Flipkart.


India also required global payment giants Mastercard and Visa to store their transaction data in India and raised import tariffs on electronic products such as smartphones. After the Office of the US Trade Representative said the measures had a negative impact on US businesses, India rolled them back.


Obviously, Trump's latest decision to do away with the trade privilege to India is a negotiation tactic which aims to compel India to change its regulations and open its e-commerce and retail markets to US players.


India says the preferential trade treatment brings an "actual benefit" of just $250 million, so ending it will not have a significant impact. The e-commerce regulations issued by the Indian government were the result of pressure from domestic retail interest groups. Unless the Trump administration slaps more sanctions, India is unlikely to review its decision.


But India indeed should open up its commodity and investment markets. In the 1990s, India accelerated its economic growth via reforms and expanding the market. As early as during the Clinton administration, the US listed India as one of the world's top 10 emerging markets. The US business community also had high expectations of the Indian market.


Nonetheless, India did not fully realize the importance of foreign investment for its national economy. Moreover, some domestic industries and interest groups became too dependent on tariff protection and raised the guard on competition from abroad, which hurt the process of India's opening-up.


Among the major emerging economies, India is on top in terms of tariff. Companies from several countries, including the US, have complained of business hurdles in India. The Indian government and enterprises should realize that opening up more could increase competition, leading to lower prices and improved quality. Only when Indian companies experience international competition on their soil can they enhance their competitiveness while going global.


Perhaps what hurts India more is the Trump administration's anti-globalization strategy. As a big power with 1.3 billion people, India must develop its manufacturing industry to create more employment and consolidate its strength. The "Make in India" strategy envisioned by the government of Prime Minister Narendra Modi serves the purpose of boosting Indian manufacturing with foreign investment undertaken by way of globalization.


However, since Trump took office, his "America First" policy has made many manufacturing jobs flow back to the US. He also cracked down on the H-1B visa for Indian IT firms and restricted the outsourcing of some services industries to India-based companies. With Trump's intensified protectionist policies, anti-globalization sentiment has also risen in some European countries. If this drive against globalization spirals out of control, India will lose development opportunities.


The US is the world's No.1 economy with per capita GDP over $50,000, while India is a populous and developing country with GDP per capita of less than $2,000. However, the US quibbles over every deal with India, making New Delhi doubt the reliability of Washington.


The US needs India's cooperation in international affairs, especially in South Asia and bringing stability to Afghanistan. And the Indo-Pacific strategy advanced by the Trump administration would not be what it is supposed to without India's participation.


Traditionally, the US accords preferential economic treatment or gives economic assistance to countries that it strategically deems useful. However, Trump has broken the tradition. Unilateral pressure on India exposes the US' lack of respect for New Delhi. Although Indian officials have said that an end to the preferential trade treatment does not significantly affect the country, and it will not impede strategic cooperation between Washington and New Delhi, the moves will lead to resentment against the US in India.


Long Xingchun is a visiting fellow at Chongyang Institute for Financial Studies, Renmin University of China. Zhao Ruoxi is a postgraduate at the School of International Relations of Sichuan International Studies University.

Key Words: India   tariff   US   Long Xingchun   

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