Indo-US trade war

Subrata Majumder
India can neither afford to stave off, nor be immune to Trump’s protectionism. Flagged up by “America First” as the guiding principle, last year Trump administration waged tariff war and this year, it lofted GSP (Generalized Preference Scheme) war against developing nations, including India.
The prolonged trade deficit, small or large, provoked Mr Trump to accuse the countries for indulging in unfair trade practices. He alleged that while the exporting nations treated USA unfairly and reaped the benefits of American open and large market, these countries were reluctant to reciprocate by opening their own market on equal terms. Even though India is not a major player in the USA trade deficit, India was looped in trade war spree.
USA is the second biggest trade partner of India, next to China. Paradoxically, USA is the biggest destination for India’s exports and China is the biggest import destination for India. This demonstrates that USA plays more significant role in placing India in global trade.
Besides, USA is the biggest balancer to mounting India’s trade deficit, which owes to bulging imports from China. This is because India has trade surplus with USA .This led USA to maintain India’s current account balance in comfortable zone. The trade surplus helped to offset 13 percent of India’s trade deficit in 2017-18.
Given this paramount dependence on USA, it will be untenable for India to retaliate, which was aired several times in various media. Against the high tariff row on aluminum and steel, India contemplated for high tariff on 29 items of imports from USA as tit-for tat. But, it postponed more than four times from actual implementation. This demonstrates that salvation from Trump’s protectionism bullet does not depend on retaliation, but on persuasive negotiations, like yielding concessions and benefits in return for something.
To protect the sovereignty, retaliation is a good national spirit for challenges. But, when imbalances inculcate in economic or political muscles, retaliation may open Pandora box.
USA accounts for one-sixth of India’s total exports of merchandise products. It is also the biggest destination for India’s IT exports. Over 50 percent of India’s IT services go to USA. In contrast, India accounts for 2 percent of USA’s total export.
Not only the size of exports, which outweigh USA’ significance to India, the basket of exports play important role. USA is the biggest importer of Indian garments and gem and jewelry. Nearly, one-fourth of India’s exports of these items go to USA. Besides exports, the important characteristic of these items are that they are labour intensive industries. They are the sources of huge employment opportunities in the country. Any retaliation against USA protectionism will roil the Indo-USA relation, which will be unhealthy for India’s exports as well as for job creation.
To argue, steel and aluminum are not the major items of India’s exports, which could dent India’s exports due to high tariff. Nor, USA is the major driver for India’s iron and steel exports. For example, iron and steel accounted for 3.7 percent of India’s total exports in 2017-18 and USA accounted for 3.3 percent. Given this insignificant role of iron and steel in India’s total exports, vis-à-vis, USA being the small importer, USA’s high tariff on steel is unlikely to impact India’s overall exports. To this end, India’s retaliatory tariff war against USA will embark more damage to trade relations between the two countries than India’s losses.
With GSP preferences done away, India is likely to loose an export market worth US $5.6 billion, according to some estimation. This accounts for 12 percent of India’s export to USA. Major items to be affected are chemicals and auto parts. Since the major items of export to USA, like garments and gems and jewelry, do not fall prey to Trump’s withdrawing GSP benefit, retaliation by India may pose a boomerang in the Indo-US relation.
Any retaliation will have negative ramification on India- defence ties . Ever since USA declared India a “Major Defence Partner” in 2016, focus on defence ties outweigh the economic relation. In this context, the recent 2+2 dialogue in between the two countries is significant. It resulted signing of Communication Compatibility and Security Agreement (COMCASA). By this, it is considered that a journey has begun for consolidation of military ties between the two countries in the context of technology transfer and defence procurement. Seen in the context of recent Indo-Pak face off, sustaining the defence partnership has become imperative.
Indeed, USA is more powerful than India, both in terms of trade and investment. Besides being the biggest export destination for India, USA is a major foreign investor. It is the major turf for employment generation, since USA is the biggest importer of labour intensive products from India. To this end, any retaliation by India signals for a major dent to its exports and economy. (IPA)