US President Donald Trump decided to end India’s designation as a beneficiary nation under their key preferential trade programme giving an explanation that India has not assured US that it will provide them with “reasonable and equitable access to the Indian markets”, thus took the decision to remove India from the Generalised System of Preferences (GSP) program. Responding to this act of the US government, Indian government decided to raise tariffs on 29 US products with effect from 9^th June. The final notice about the tariffs were issued by the Ministry of Finance on 8^th June didn’t include one item from the earlier list, artemia which is a type of Shrimp. India is still preserving the Most Favoured Nation (MFN) rates for these products for all the other countries except for the US. The Indian government actually planned to impose these tariffs back on June 21, 2018 when the US decided to hike custom duties on certain aluminium and steel products (25% on steel and 10% import duty on aluminium products) of India. India decided to extend the deadlines for imposing these duties many times thinking that some solution would come out during a negotiation between the US and India but  those negotiations came to an end after the decision of the US to end preferential trade with India and the US withdrew its export incentives to Indian exporters under the GSP programme. According to the Ministry of Finance, this would impact goods worth $5.5 billion from India to the US.

    Apart from the imposition of high import duties on 29 US goods, India has notified higher tariffs on several US goods. While import duty on Walnut has been hiked from 30% to 120%, duty on Chana, Masur dal and Chickpeas from 30% to 70%, duty on lentils will be hiked to 40%. The other items include certain kind of nuts, apple, walnut, iron and steel products, flat-rolled items of stainless steel, alloy steel, tube and pipe fillings, screws, bolts and rivets. This move of imposing higher duties on US items will hurt American exporters as they now have to pay higher import duties on these 29 products. India would get $217 million additional revenue from these imports.

Impact of India’s retaliatory tariffs on the US

   The retaliatory tariffs imposed on 29 US items- particularly agricultural products like apple and almond will badly impact millions of farmers in California, according to an influential American lawmaker. According to Congressman TJ Cox, this trade war between the US and India can’t be fought at the expense of the Central Valley farming communities. Cox also terms Trump’s decision to end trade privileges “Needless”. He further said that there won’t be any winners in this war between India and the US but the Central Valley could lose millions in this war. Alyssa Ayres, who is a member of the Foreign Relations, said that the President has picked a needless fight with India, mainly over aluminium and steel. Now after the retaliatory tariffs, California almonds exporters have to pay $650 million which will adversely affect them.

   One area which is severely damaged by the Indian hiked duties is the Washington state apple industry, which is heavily export-dependent. In 2017, India imported 7.8 million 40-pound boxes of fine quality apples from Washington state apple crop. But this figure fell down to 2.6 million boxes of 40-pound in 2018 and it is expected to slow down even more. After imposing a 20% retaliatory tariff on apples, the total duty equals to 70%.

    The alarming issue for the US right now is that if the Apple industry is not able to find an alternative market to export, then those apples can end up in the domestic market, which will depress the prices for all growers.

    Considering the newly occurred trade damages, the US Department of Agriculture has decided to provide assistance to the affected communities within the 2^nd forthcoming trade mitigation package. As of now, Western growers are engaging with United States Department of Agriculture (USDA) for a quick resolution to all the existing trade conflicts.

Impact of the retaliatory tariffs on India:

   Though India has imposed retaliatory tariffs as a response to US ending trade benefits to India, it is still not the solution to the problem. India is quiet heavily dependent on the US for trade and now the preferential trade benefits are no longer available. So, the Indian government is considering ways to provide support to the sectors which are impacted by the US government’s decision.  The government is expected to consider ways to support the export sector and cushion it as the US had withdrew the Generalised System of Preferences (GSP) scheme. Federation of Indian Export Organisations (FIEO) has declared that the sectors affected will be provided benefits under the Rebate of State & Central Tax Levies Scheme (RoSCTL).

Retaliatory tariffs on US could worsen trade ties:

   According to various sources, India’s move to impose retaliatory tariffs on the US could potentially worsen and weaken the trade relations between India and the US. One of the main reasons for this is because the Trump administration doesn’t seem to relent on International trade and is ready for a confrontation with India. The trade deficit between the US and India was $21.3 billion in India’s favour in 2018. The problem that has resulted in such a high deficit hovers around three issues- 1. Disagreement over medical devices in 2017, 2. India’s recent rules on e-commerce that have inconvenienced US-based firms Walmart and Amazon, 3. Data localization rules by the Reserve Bank of India (RBI). Various trade analysts of the US said that a retaliatory tariffs response by India may be good from a political standpoint, but it could have long-term damage on the trade between the two countries.

    The increasing strain in trade between India and the US is happening at a time when the economic growth rate is slow globally as trade tensions among the major economies such as the US and China weigh a lot on business.  The RBI has said in its second bi-monthly monetary policy statement that the global demand is very weak due to escalation in trade wars and it may further impact India’s exports and investment activities. The Central Statistics Office had also lowered its growth estimate for India to 7% from 7.2% for financial year 2019.

    However, many experts have said that the disruption caused due to trade wars among the major economies have offered India an opportunity to improve its share in the Global market. Prime Minister of India Mr. Narendra Modi , who has returned to office for the second time after a glorious victory in the 2019 Indian general election last month had urged the Chief ministers to optimise the manufacturing and export potential of their states.

    Both the countries are trying to work together to solve the trade issues between them. US Secretary of State Mike Pompeo had an official meeting with Prime Minister Narendra Modi in New Delhi on 26^th June to discuss about the recent trade events and conflicts between India and the US. Moreover, a meeting is set to be conducted between President Donald Trump and Prime Minister Narendra Modi on the sidelines of the G-20 Summit in Japan. 

    Conclusion

    To conclude, we can say that India’s retaliatory tariffs on 29 US products is a response by the Indian government to the decision of the US to end its preferential trade with India. The thing is that whatever the US did is not right, but the action taken by India is also not the solution to the problem. Both the decisions have their set of aftermaths and are going to affect the economies of both the nations in the macro level. This event is a very recent one and there are a lot of aspects yet to be considered, many questions yet to be raised and many issues yet to be solved. The prolonged slowdown in the real estate market is alos one of the main reasons for the slow down of the economies of both the US and India.

References

https://www.businesstoday.in/current/economy-politics/india-commerce-ministry-retaliatory-tariffs-duty-free-exports-us-ends-preferential-trade-status/story/353660.html

https://www.hindustantimes.com/india-news/retaliatory-tariffs-on-us-could-worsen-trade-ties/story-MHUgabo6nfZhfZ6B5Yv7SL.html

https://www.news18.com/news/india/washington-apples-in-soup-as-india-imposes-retaliatory-tariffs-on-certain-us-imports-2194255.html

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